How to Calculate Your Facebook Ads Budget

Author: Jeff Sauer
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We’ve all seen the hype around Facebook Ads.

Success stories. Horror stories.

We’ve been peppered with ads showing a barely 15-year-old looking guy posing in rented clothes with his rented girlfriend next to a rented Lamborghini, promising your life will change if you follow this one tip. 

Of course, I’m not much of a hype man, so I just stick to the numbers.

If you’ve ever caught yourself day-dreaming about all the traffic, engagement, and sales others are claiming to be racking up advertising on Facebook and thought about joining the party too, I’ve got some good news for you.

I’m releasing a resource that helps you answer the question:

How much should you spend on Facebook Ads?

Whether you’re a veteran advertiser or you’re thinking about running your first ad, this resource should come in handy to help you become more confident that advertising on Facebook will be a good use of your marketing budget.

In this post, I am going to help you answer your most pressing Facebook advertising questions using my Data Driven Facebook Ads Budget Calculator.

You can download the Budget Calculator below. Watch or read along and I’ll show you first-hand how to use the calculator to project a target budget for your Facebook Ads.

We’ll also look at how to use your business numbers to estimate your profit potential from Facebook advertising.

Take the Facebook Ads Budget Calculator for a Spin

Know your numbers (and set your budget) BEFORE you advertise on Facebook

Facebook business manager provides many useful reports on the “known” aspects of advertising. i.e. how much you spent, when you spent it, and how many actions were driven.

But when it comes to planning, the data Facebook provides becomes far less useful, because they don’t know your business strategy!

You need a tool for validating your business numbers before planning your advertising budget.

That’s why we’ve made the Data Driven Facebook Ads Budget Calculator for your fun and profit.

Notice how this screenshot already includes vital numbers for your business, like lead to sales conversion rates, product costs, and advertising management expenses?

These metrics are crucial to projecting your budget and earning a profit from advertising. But quite honestly, they are none of Facebook’s business!

The calculator I am sharing with you today helps you use YOUR business numbers to project and estimate the right budget for your advertising goals.

How the Facebook Ads Game impacts your budget

Before we start crunching numbers in our calculator, we need to take just a minute to discuss how your Facebook advertising strategy will affect your costs.

I like to look at advertising as a quest to achieve 100% awareness. Or from a sports perspective, to reach your goals.

The purpose of your ads is to provide enough awareness of your offering that it motivates potential customers to (eventually) purchase from you.

Think of your ad campaigns are like plays you run on your way to scoring a goal, touchdown, etc.

As an advertiser, you want to help your prospective customers get down the field, without going over your budget.

Advertising success at scale requires you to string together the right mix of plays to run your marketing game plan to a maximum return on your advertising spend.

From unaware to paying customer in one play? That’s your highest cost, lowest conversion rate activity

Moving a customer from unaware of your brand to immediate purchase using Facebook Ads is a low percentage play.

It’s like a Hail Mary pass in football. It’s a strategy that doesn’t often work, and it’s usually the last effort of a losing team. Take these losers for example.

Aside from marketing geeks like me (and possibly you?), no consumers log into Facebook just to see Ads.

That’s why your ads have to steal people’s attention away from looking at pictures of their friends or watching viral cat videos. Even then, you have to hold their attention long enough to get them to engage with your marketing message.

You’re asking a lot of an “unaware” audience to not only give you their attention but also to make an immediate purchase.

So trying to convert unaware prospects into “right-now” customers is not only inefficient, it’s also expensive.

Unaware to lead = Lower advertising costs, medium to low sales conversion rate

It’s usually very inexpensive to run ads that aim to bring awareness to an unaware audience.

These impressions won’t drive a high percentage of action-takers, but since there is more ad inventory than advertiser competition, you can get clicks for cheap.

This top of funnel advertising may make sense for your business because even your best customers were unaware you existed at some point in time. Typically, people who are unaware of your brand need to familiarize themselves with your product or service before they are ready to make a purchase.

Providing this unaware prospect entertaining ads or a low-stakes offer can help you get their attention while making them aware of your brand.

Then, as the audience becomes more receptive to your messages, you can move them down the field using inexpensive marketing tactics like email, messenger marketing, or re-marketing to progress them on the path to purchase.

Advertising to unaware audiences won’t result in a ton of sales from a single ad, but targeting these prospects can lead to less expensive sales costs if you run the right plays to nurture the relationship.

More aware audiences = Higher advertising costs, medium to high conversion rates

What about audiences who have expressed interest in a solution similar to yours?

These audiences are closer to becoming customers. But, it will cost more to target them with your ads.

In an auction-based advertising system, like Facebook’s, you are competing with other advertisers. That competition drives up the cost of serving ads to the best audiences.

The good news is that even though you’ll spend more money to reach these prospects, they are more likely to convert. So targeting more receptive audiences can still be highly profitable.

The Data Driven Facebook Ads Budget Calculator

With your advertising game plan in mind, let’s bust out the Data Driven calculator and start projecting your budget.

The golds cell in the calculator are inputs (or variables).

The Facebook Ads Budget Calculator

Access the Facebook Ads Budget Calculator

Changing the numbers in the gold cells will have a trickle-down effect on your estimated results.

Facebook Ad Spend Per Month

The first variable in the calculator is your monthly Facebook Ads Spend. Now, you may be thinking, “If I knew what my Ads Spend should be, I wouldn’t be reading this article.”

I hear ya!

But I ask that you bear with me and I’ll show how this works out in the end.

For right now, enter an approximate amount for your Ad Spend.

Facebook Ad Spend

You could use your maximum advertising budget fro the rest of the year, a generic estimate, or the total amount you spent at Starbucks last year.

You’ll understand how to base this number on YOUR data by the time we finish this exercise.

Average Cost Per Click

Although it’s more common to optimize for results or actions on Facebook, you can also optimize for ad clicks.

You can estimate your click costs using your advertising history. Or you can input your target cost-per-click (CPC) into the calculator.

Facebook Cost-Per-Click

Lead Conversion Rate

Leads are people who engage with your ads and give you opt-in permission to follow up with them.

Your leads might subscribe to your email or messenger list, or sign up for follow up call.

So for this variable, you want to estimate the rate at which people will respond to your ads and give you their contact information.

Facebook Lead Conversion Rate

Lead Conversions and Cost Per Raw Inquiry

With all your variables filled in the top section of the calculator, you can get an idea of how many leads your budget will produce. You can also estimate your lead costs.

Facebook Ads Lead Metrics

At this point, you may want to adjust your budget based on these estimates. Or, you can keep going and see how your conversion metrics impact your Ad Spend.

Qualified Lead Percentage

Many of the leads your ads produce will not be high quality (or ready to make a purchase decision any time soon). Some leads will give you a junk email address. Others will lose interest moments after they take advantage of your opt-in offer.

Qualified leads are those who continue to engage with your messages after they sign up for your email or messenger lists.

Qualified leads from Facebook Ads

You can use the open rates of your “welcome” emails, or your follow-up call response rate to estimate your qualified lead percentage.

Email Sequence Completion Rate

Many advertising campaigns will utilize email sequences to nurture their lead’s interest for any new subscriber that opts-in to their list.

Your Email Sequence Completion Rate is the percentage of people who engage with your messages all the way through to your sales offer.

Engaged Leads From Facebook

Up-Sell Take Rate

In the calculator, your Up-Sell Take Rate is the percentage of people you expect to take you up a purchase offer for your product or service.

Sales Conversions from Facebook Ads

Average Revenue Per Sale

Your average revenue per sale is the average price of the products or services you’re promoting with your Facebook Ads campaign.

Revenue Per Sale

Product Cost

Your product cost is represented as a percentage of your average revenue.

Product Cost

For example, if you’re selling a product priced at $100, and it costs $50 to produce and deliver that product, then your product cost is 50%.

Agency/In House Management Fees

Your agency or in-house management fees is the amount you pay a service provider or employee to manage your Facebook Ads.

Facebook Ad Agency Fees

How your business metrics affect your Facebook Ads budget…. and your profitability

With your conversion data in the calculator, you can start to see how your budget impacts your results.

You can also see how your product and sales systems affect your potential to produce a profit from Facebook Ads.

Facebook Ads Budget Results

For example, if your product cost is low, and revenue per sale is high, you have the perfect advertising scenario.

But, if your profit margins are average, then your lead conversion and sales rates need to be strong to make advertising profitable.

Customer lifetime value

One of the metrics we didn’t discuss yet is customer lifetime value (CLTV).

If your customers are highly likely to make repeat purchases, then you can afford to be ROI neutral (or even negative) on the first sale. This is why advertisers promoting products with high CLTVs are often more aggressive with their Ad Spend.

What if you don’t know your numbers?

The Budget Calculator will only be as accurate as the data you enter. But I also understand that if you are anxious to start running ads, you don’t want to wait around for perfect data.

As a marketer, or PPC service provider, it’s possible (and even likely) you won’t have access to all the product, sales, and conversion data you need.

If that’s the case, don’t worry about being precise. Instead, guestimate with the numbers you do know so you can still work out your budget.

Then feed your real numbers back into the calculator as you run your ads.

As you update your budget numbers with real data from your ad campaigns, look for areas you can make improvements.

The best path to a high ROI in PPC advertising is small incremental tweaks that lead to compounding results.

Can you make a profit on Facebook Ads?

Once you’ve entered your numbers into the calculator, I want to hear one thing from you. Do you see a path to profits using Facebook Ads?

Leave a comment below with any questions you have about the calculator or your Facebook Ads budget.

The post How to Calculate Your Facebook Ads Budget appeared first on Jeffalytics.

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