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How Much Should You Spend on Facebook Ads – Budgeting Steps


How much should I spend on Facebook ads? I’m going to be walking you through a series of steps that you can take to effectively determine the right advertising budget for your specific business.

The first thing that we’re going to talk about is really understanding your numbers and your goals. The second thing is understanding your industry data and your own personal business conversion data. And then finally I’m going to be sharing some steps that you can take to distribute that budget.

Finally, I’m going to be sharing some mistakes that you really want to avoid if you want to profitably spend on Facebook and Instagram ads. Step one, first of all you really need to understand the numbers that are related to the marketing and sales of your business. For most of my clients, the goal is to make money, which means that you’re focused on getting leads and making sales. Typically, a marketing budget for any business could be anywhere between five and 12% of revenue. Some newer companies may want to spend closer to that 12% because they want to grow aggressively. If you’re a company that’s been around for a while, you’ve got great revenue coming in. You want to maintain or just grow incrementally. You might be closer to that 5%.  What if you’re a business that is brand new or you’ve never spent money on marketing, you’ve only focused on word of mouth and referrals. If that’s the case you really need to seek out some additional information.

The first place you can find this information is industry research. There is a lot of information online and in industry organizations on some of the numbers that I’ll be sharing with you. There’s also a lot of opportunity to reach out to other people in your field and find out exactly what they’re doing to get a good idea of the direction you should be going in. So those very important numbers that you want to find are number one, what is an appropriate cost per lead for your business? So a lead is not a sale but it is what we need first in order to make a sale. However, the most important number that you can focus on is your cost per core event. If you’re in any type of business that a conversation needs to be had before a sale is going to be made you’ve got to have a number on what you can profitably afford to spend for that key event.

What you’re going to find when you start doing this type of advertising, is that the lowest cost per lead ad campaigns may not be producing the lowest cost per core event. If you sell a low dollar product or service, you’re going to have to figure out that maximum number that you can spend to remain profitable. If you’re selling something high dollar, it’s very similar but you actually have a little bit more wiggle room as long as your conversion rates are good.

Finally, you want to look at what is a strong cost per customer acquisition for your business. So how much money did I have to spend in order to acquire this new customer? Again, that number is going to be different for every business. If you have different products and services, it may be different for those different products and services. I would also really look into your conversion rates, whether that’s a sales team or maybe you are selling something directly online, those numbers are going to show you how many leads you’re going to need to get on the phone, or get to an appointment to make that sale. I get a lot of questions on what is that magic number but ultimately that magic number in terms of ad spend is heavily dependent on what your expectations are, and what those goals are.

If I’m a new business and I want to grow to a hundred thousand dollars in the next few months, that’s a very clear goal. We can reverse engineer that goal to determine based on past industry data, how many leads we’re going to need, what that costs per core event is going to be, and how much we can spend to acquire one customer.

The last step is taking that monthly ad spend and properly distributing it based on the types of ad campaigns you’re going to need to use to really see results. There really the three categories, about 20% should really be dedicated to that education engagement and audience building type of advertising. What I see happen far too often is that business owners will either produce nothing but lead generation focused ads or nothing but content focused ads. And ultimately you have to have them both to really succeed. So, you want that 20% to really be creating this audience for your business that you’re going to be able to leverage long-term so that your results do not dry up or skyrocket in terms of costs. About 60% of your budget is going to be focused directly on promoting your offer and generating those conversions. You also want to dedicate about 20% to your retargeting efforts.

Retargeting is an amazing way to get a lot of bang for your buck, but ultimately if that’s all you do, your audience is going to be so small that you’re not going to see those financial results either. So all three pieces of this puzzle really need to go together and be working together in harmony to maximize the impact of your budget.

So as promised, these are some of the biggest mistakes that local business owners or online business owners are making when it comes to their Facebook advertising campaigns.

  1. Number one is not giving it enough time. This time is so crucial to be able to get that initial data, analyze what the data is telling you, and then make the appropriate adjustments from there. You also do want to go back and revisit that customer buying cycle and the length of time that historically it can take someone from that initial lead until the sale closes. If you’re in a business that has a very short buying cycle, that’s great. You’re going to be able to track that data a lot faster and adjust your budget based on what you’re seeing. If it could take six months for the average customer to close, you at least need to give it six months so that you can really see the return on ads spend.
  2. The next thing is going to be not spending enough. You’ve got to understand that the size of your audience and the cost of your product ultimately will dictate what you can expect to see in terms of those costs per lead. If you don’t spend enough money per month Facebook’s ultimately going to distribute that budget in such a thin way that you won’t even be able to generate at times a single lead per day. Whereas if you had just bumped up the budget, you would be able to see amazing results potentially.

The next thing that I see is that people are choosing the wrong types of campaigns and objectives. So we did mention those three different types of ads that you should be using in your strategy. Ultimately, the objectives do correlate to those, but if you’re really looking for leads, don’t focus on a brand awareness objective, don’t focus on reach necessarily. You need to make sure that you’re telling Facebook exactly what it is you want to see so they can help you achieve those goals.

Finally, really not understanding how to read the data in ads manager. If you go to the customize columns option in ads manager you have the ability to rearrange and organize, add and remove the pieces of data that are critically important for you to make those decisions and see very clearly which campaigns are producing leads and which are not, which campaigns are producing scheduled calls, and scheduled appointments and which are not.



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