How Much Should I Be Spending On Facebook Ads?

If I got a dollar for every time someone asked me what their starting budget for Facebook Ads should be, I would never need to work again. Well, that’s probably a slight exaggeration but it’s definitely the most popular question I get asked. If you have ever asked yourself how much should I be spending on Facebook Ads, today you are in luck.

IS THERE A MAGIC NUMBER?

I know everybody thinks I have this magic number that works for all businesses but it isn’t quite that simple.

This number is going to be different for everyone and there is no right answer. When considering how much you should spend on your Facebook Ads, the number depends on numerous factors like your business, objectives, acceptable cost of acquisition and what your products or services actually are. Two things that will impact the success are you conversion rate and cost per lead.

WHAT CAN YOU AFFORD?

The real question is, what can you afford to pay to acquire a client or customer? In an ideal world, we want to be able to get this cost to our business as low as possible.

I’ve created a video tutorial to help you go from completely clueless to having your starting budget calculated in five minutes flat. It’s definitely something I wish an expert had shared with me when starting out.

I know you’re all dying to know how to calculate your starting Fb Ads budget so let’s get straight to it.

THE CALCULATION

But how much should I be spending on Facebook Ads?

Let me take you through how to best calculate this step by step. I’ve listed all the calculations at the bottom for you.

1. Determine your average customer value

What is the average value a customer spends with your business?

2. Determine your acceptable cost of acquisition

For service-based businesses, this is the price you’re willing to pay to acquire a client. Service businesses generally allow up to 30% off the value of the client. When determining this amount, consider the costs you have to cover for rent, staff, subscriptions, software etc. Next up, consider the profit margin you’d like to make from each client on average.

Similarly, for ecommerce businesses, consider what you’d like your profit margin to be eg. is it 50% of the average customer value? Deduct this amount from your average customer value, then deduct your ‘costs of goods sold’. The remaining amount will be your acceptable acquisition cost.

3. What is your lead to customer conversion rate (service-based businesses only)?

This is how many of your leads convert into an actual client.

4. Determine your acceptable cost per lead (service-based only).

To calculate this figure, multiply your conversion rate by acceptable customer acquisition cost. This is the amount you’re willing to pay per lead.

5. Finally, it’s time to determine you Facebook Ads starting budget.

Consider how many clients/customers you would you like the campaign to generate a month to be worth running? To calculate this number, times your desired number of clients by your acceptable cost per lead.

If you aren’t sure of any of the numbers above, take an educated guess.

THE EXAMPLES

Service-based businesses

1. $3000
2. $900 (30%)
3. 10%
4. $90 ($900 x 10%)
5. $900 starting budget (10 clients at $90 each)

 Ecommerce businesses

1. $50
2. $15 = ($50 – 25 {50% profit} – $10 cogs)
3. $300 starting budget = ($15 x 20 customers)

Happy calculating.

If you’d like to know more information on how to create a successful Facebook Ads campaign, be sure to check out my recent podcast on that exact topic.