I get this question from coaches and service providers weekly. The only way to really answer this is to systematically test some assumptions after you’ve decided on a monthly revenue target.
Work through the following steps to confidently decide on a monthly Facebook ads budget that will get you your target.
It’s not as daunting as it seems. When you test your ads you’ll arrive at concrete metrics to aim for in order to stay within budget and control your spend.
What is the minimum budget I will need?
As a rough guide, you’ll want an ad spend budget of £300 to run ads and £600 to test various variables for the best return on your investment. This is in addition to any expenses you incur in creating your ads or getting a supplier to run your campaigns for you.
When you find a great ad you can back it with more budget but you’ll have to continue investing. Even the best ad will start to stall as audiences tire and offers expire.
Your budget has to be in line with the following figures to be realistic:
- The cost of your service. If it’s expensive, you can’t expect to invest £10 for a £1000 purchase. If it was that easy, I wouldn’t be writing this blog!
- Customer lifetime value. How much will each customer spend with you over their lifetime. Consider repeat purchases as well as whether they will continue to buy more expensive products e.g. subscribe to your membership group. Suddenly each lead is worth more than you thought and your ad investment doesn’t seem so expensive.
- Results from previous ads that you have run for a similar service e.g. if you’re running a repeat webinar or event, use previous ad metrics as a guideline.
What are your monthly lead and revenue targets?
Start with a target income that you want per month. It’s your business. You know your own business goals as well as what is realistically what you can deliver on over time.
- What do you want to earn in a year? Divide this by 12 for a monthly goal.
- How many leads or actions do I need to generate from my ads in order to achieve this? i.e. how many people who see my ad do I need to take the action I want them to bring in this income
- Calculate and include your lead conversion rate figure to come up with a final target number of leads that your ads will need to bring in each month to make them viable.
- Can my business really serve this many customers? If not, either you have to earn more from each customer transaction or reduce your revenue and lead goals.
- Take away your advertising costs (see below) and decide if you are happy with the resulting profit.
Check out my blog on calculating the number of leads you need each month and factoring in your conversion rate (your ability to turn leads into customers or your website’s ability to get visitors to take the action that you want them to take e.g. entering their details for a download or newsletter).
What is your advertising cost?
Running Facebook advertising campaigns will cost you money. Whether you hire someone to do this for you or not, you’ll have your ad spend cost, together with your expenses to cover with your monthly income.
A successful ad will generate metrics that fall within set boundaries to ensure you get enough leads to hit your revenue target. Your target revenue must cover your ad investment to break even.
- This is the cost paid to Facebook in order to run your ads. Ad cost depends on the ad objective, the quality of the ad, the relevance to your selected audience and the competition from other companies to be seen in the same audience’s newsfeed.
Potential ad expenses to include:
- Running ads successfully, including testing to maximise return on investment, may take up to 20 hrs a month. This includes ad creation as well as monitoring and adjusting your campaign to hit targets. If you don’t do the latter two, you’ll be wasting your money. So, consider your time when budgeting.
- Fees for a supplier to manage your campaign for you if you want to outsource your Facebook advertising. See here for a guideline on our fees.
- You will need a few good creatives (the visuals for your ad i.e. the elements that catch your eye in your newsfeed such as videos, images and gifs). To test effectively you’ll want a variety of formats and versions to see which works best and to switch in when your audience tires. Some can be re-purposed from elsewhere, but you should invest some time in a creative that works in an ad format e.g. make a video snappy and get straight to the point. No artistic leads ins and intros! If you outsource, get a quote to include in your budget.
- An optimised website. Your website landing page (where your audience arrives on clicking on an ad) needs to compliment your ad, load fast and drive action. If your site quality is poor you’ll impact your conversion rate and results. Check out our blog on what you need to get ready ahead of running ads.
- Great copy for your ads. This is the written part of the ad that encourages your audience to take action, helps them understand your offer and conveys the value they will get from acting on your ad. Again this can be outsourced by yourself or your Facebook ad campaign manager.
What profit will my ad campaign generate?
You can estimate this by taking away your ad costs from your target revenue. For a good answer to this you’ll have to test your assumptions.
Testing your budget assumptions
You have a monthly target revenue that gives you a healthy profit after covering all your ad costs. You also know how many leads or actions you need in a month to hit this goal.
Divide this revenue figure by the number of leads or actions you need per month from your Facebook advertising campaign. This will give you your CPA or cost per action, that you need to achieve when running your ads. Facebook automatically generates this figure for you – you just need to keep an eye on it. If you exceed your target CPA then you won’t hit your revenue targets and if you come in under you’ll make more profit that you had planned (assuming you stick to your planned ad spend).
If you have a revenue target of £1000 to cover costs and give profit, and a conversion rate of 1 in 4, you will need 40 leads from your ads to hit your revenue target. 10 purchases will get you your £1000 but only 1 in 4 will purchase.
If your budget is £600 per month, then you will need to spend no more than £15 per lead (£600 budget divided by 40 leads equals £15 per lead).
When to make changes
You won’t know if this CPA is achievable until you test it. You may find that no matter what you test you can’t get it below £30 per lead. This would mean you need to increase your monthly budget to hit your target leads or reduce the number of leads, and profit you’re happy to gain each month.
Making amendments to all elements of your ad can impact your CPA. Monitoring this figure will ensure you stick to budget and help you decide whether or not you need to make changes to your campaign.
If all else fails you can pause the campaign, rather than waste money.
Ads aren’t a magic bullet!
Remember Facebook advertisements are not a magic bullet. They are cost-effective and well targeted compared to other marketing channels but your website, Facebook page, conversion rate and ability to sell up and deliver a great service will all have an impact. They can’t do all your selling for you.