How To Calculate Your Facebook Ads Starting Budget
May 11, 2024
The most popular question we get asked by far is "how much should I spend on Facebook Ads when I first start out?".
This is a difficult question to answer given that every single person has a different business and financial situation.
You'll be pleased to hear that we do have a method that we use to calculate what your starting budget should be given your unique set of circumstances.
This number will be different for everyone and requires a calculation that takes into consideration your business, goals, what you sell and your acceptable cost to acquire a new customer.
Two things that greatly impact your ads results are your conversion rate and cost per lead.
The real question when it comes down to it though is "what can you afford to pay to acquire a new customer".
Well get to that shortly.
MINDSET VERSUS THE NUMBER
Before we dive into the calculation, I did want to mention that the dollar number has more to do with your mindset than the figure itself.
Firstly, your minimum starting budget should be an amount that you can afford to lose – this will depend on your individual financial situation, business and revenue.
Start with an amount that won't impact you financially if you don't generate any leads or sales.
We'd never recommend risking money on Facebook Ads that you need to cover your every day living and business expenses.
Comparatively, begin with a budget that you care enough about that you will actively go in and check on the campaigns and make the necessary adjustments.
You must spend something that means something to you. Only then will you put the time and effort into looking at the data and managing the campaigns.
What we are saying is "let it be an amount that you can afford to lose but you rather wouldn't!".
Lastly, consider the risk versus the reward when testing out a new advertising platform. In our experience as ads experts, taking the risk with Facebook Ads is worth it.
Why? Because in a few months time you could come out of it with a marketing channel that can consistently and sustainably bring you sales. This in itself is extremely valuable.
THE STANDARD DOLLAR AMOUNT WE RECOMMEND
Most new advertisers think there is a recommended starting dollar amount but it's not that simple.
You can start as low as $5 as day but it's important to understand that a budget this low isn't going to do a lot for your business.
It's perfectly fine to experiment with this dollar amount but it's very unlikely to move the needle especially if it normally costs you $50 plus to acquire a new lead or sale.
It will be days if not weeks before you notice any conversions.
WHAT BUDGET CAN YOU AFFORD TO SPEND ON FACEBOOK ADS?
The next question you should be asking yourself is "what can you afford to pay to acquire a client or customer?".
Ideally, you want the cost of acquiring a lead or sale to be as low as possible but you need to start somewhere.
We've created a video tutorial to help you calculate your starting budget in minutes.
Let's dive in...
THE CALCULATION WE USE AT TDE
How much should you budget for your Facebook Ads?
Here is the calculation step-by-step that we take you through in the video tutorial above.
1. Determine your average customer value
List down the average amount a customer spends with your business over their lifetime.
For ecommerce, you can use the lifetime value or average order value here.
2. Determine your acceptable cost of acquiring a lead or sale
If you are a service-based business, this is the price you're willing to pay to acquire a client. On average, service based businesses allow up to 30% of the value of a client as the cost of acquisition.
When calculating this number for your business, consider your expenses including rent, employees, subscriptions etc. You also need to consider the profit margin you'd like to make from each client on average.
Similarly, if you are an ecommerce business owner, consider what you'd like your profit margin to be e.g., is it 50% of the average sale? Once you determine this figure, deduct it from your average customer value (or average order value if you used this figure instead). Then, deduct your 'cost of goods sold'.
The figure remaining will be your acceptable cost of acquisition.
3. Determine your lead to customer conversion rate (service-based businesses only)
Your lead to customer conversion rate his how many of your leads convert into an actual client.
4. Determine your acceptable cost per lead (service-based businesses only)
To calculate your acceptable cost per lead, multiple your conversion rate by acceptable customer acquisition cost. This is the amount you're willing to pay per lead.
5. Determine your Facebook Ads starting budget.
Lastly, think about how many clients or customers you would like the campaign to generate a month for it to be worth running.
To calculate this number, multiply your desired number of customers or clients by your acceptable cost per lead (service businesses) or sale (ecommerce businesses).
If there are any figures you aren't aware of, take an educated guess.
EXAMPLES STARTING BUDGET CALCULATIONS
Service-based businesses
- $3000
- $900 (30%)
- 10%
- $90 ($900 x 10%)
- $900 starting budget (10 clients at $90 each)
Ecommerce businesses
- $50
- $15 = ($50 – 25 {50% profit} – $10 cogs)
- $450 starting budget = ($15 x 30 customers)
CAMPAIGN BUDGET OPTIMISATION VS AD BUDGET OPTIMISATION
When it comes to where to set your budget within your Facebook Ads campaign, our recommendation is to set the budget at the 'Campaign' level (CBO) over the Ad Set level (ABO).
This feature will allow you to apply a single budget to all the ad sets (audiences and placements) and individual ads (creative) underneath. Meta will then allocate the budget to the ad sets and creative getting the most engagement.
DETERMINE IF YOUR BRAND IS READY FOR FACEBOOK ADS
Not sure if you're ready to start Facebook Ads. Use our 6-step Facebook Ads Starter Checklist to determine your brand's readiness before you spend a cent.
