How much should you spend on Facebook ads? 5 factors to consider

One of the most common questions I get asked is “how much should I spend on Facebook ads?”. My reply is usually the deeply unsatisfying, “I’m not sure, that depends on your budget, your objectives, goals, audience, campaign testing blah, blah”.

In short, there is no set answer here, but here are FIVE factors you might consider when estimating, setting and scaling your Facebook ad spend. Get ready to do some maths!➕➗➖✖️💲

(This was supposed to be a short, succinct blog but has turned into an essay – my apologies).

1.     Cost per 1000 people reached:

Firstly, there is no set cost for your ads – it’s an auction so you’re competing against every other advertiser going for that audience.  

The AVERAGE is about $10/1000 people reached – if you spend $10 you’ll reach about 1,000 people.

I usually plan with this $10/1000 formula in mind because it makes the maths easy. But just be aware that it does oversimplify things – your actual costs will depend on how competitive your audience is, what your objective was (e.g. reach is cheaper than traffic) and how good your ad is (good ads are rewarded in the auction).

You can check your own average CPMReach in Ads Manager by switching the Performance Button to Delivery (see screenshot)

I use the CPM Reach method for both brand awareness and in-store sales campaigns where you want to try and reach as many people in your target audience as possible (multiple studies have shown that reach > engagement for these campaigns).

Here’s an example scenario:

You’re a Motocross helmet that sells in-store and you’re trying to build brand awareness.

You look in ads manager and find that there are 280k people in NZ with an interest in Motocross. So to reach all of them you’re going to need around $2,800.

BUT you only have $1000 to spend – so using the $10/1000 estimate you know you’ll reach reach around 100,000 (36%) of them, which is still good audience penetration.

 If you only have $10 to spend, you’ll only reach 1000 (less than 0.5%) so brand awareness building will be very slow – I’d think about increasing my budget, or seeing if I could cut the audience down by being super-targeted.

2. Cost Per Result.

 Plan back from your online marketing objective and your estimated cost per result – page likes, event responses, link clicks, leads etc. This usually requires either data from a past campaign, an estimate based on your experience or a bit of testing with small budgets before you scale.

Example scenario:

E.g. You’re running a Summer Market and you want to create some buzz and lock it in diaries so you run a Facebook Event campaign. Last year, you spent $100 and got 150 responses meaning $0.67 per event response. This year your goal is to get 500 responses so you’ll need a budget of around $335 to achieve that ($500 x $0.67)

Your client says they want to increase page followers by 2000 likes. In past page like campaigns it has cost $0.90 per page like so a purely ad budget recommendation would be $1800. But your client only wants to spend $500 which will only get you around 556 new followers. You’ll have to plug the gap by using other organic strategies.

3.  Cost per sale

You’re selling shoes that retail for $100. You’ve done a few campaigns and you know your average cost per sale is $15.

If your goal is to sell 200 pairs of the new season shoes, you’ll need to budget around $3000 ($15x200). This will give you total sales of $20,000.

In this equation, you’d also need to make sure it’s still giving you an overall profit (ROI).

E.g. in the above scenario selling shoes, if your profit margin on shoes is only 10% ($10) and it costs you $15 to sell a pair, then you’re actually in the negative by $5 per show. A sure-fire way to slowly go out of business.

4.     Cost per new customer acquisition

 The BIGGEST mistake I see businesses make is not thinking about or underestimating much it will cost them to get a new customer. Particularly when you’re selling a high value item or service.

In fact, I made this mistake when launching The Classroom. I was starting off and nervous about spending money (since I wasn’t making any!) and I assigned $150 to the first Classroom campaign.  I only sold 3 tickets…. (I filled the class up with non-paying friends so I didn’t like a loser). It took a while for me to catch on to the fact that I needed to spend about $65 bucks to sell one ticket – so when I scaled up my campaign budget I sold more tickets and eventually filled the class.

Here’s another example I had with a client last year.

It was a Yoga studio in Auckland that needed new clients for their beginner package which cost $200 for 10 sessions.

They spent $20 here and there, got some engagement but no students and concluded that Facebook advertising didn’t work for them.

After some audience and message testing we discovered that on average they needed to spend $30bucks to get a new client. So, to get 10 people signed up to the beginner class they needed to spend $300 on the campaign (not $20). That’s $300 to get $2000 sales (or a return on ad spend of $6.67).

5.     Lifetime Value:

In some scenarios, you might also want to consider customer lifetime value (LTV or CLV) – how much a customer will spend on average with your business over their lifetime.

 Example:

It costs a beauty salon $50 in advertising to get a new customer booking a facial worth $80 (it’s a highly competitive demographic). After product, premises, staff costs etc are detracted ($50) – it’s cost them $100 for an $80 sale - a negative ROI of $20. So with that knowledge you’d turn the advertising off and say that does not work for me.

HOWEVER, the salon owner knows that once a new customer comes in the door they are likely to become returning customers, and buy products and other services etc. In fact, each customer actually has an average lifetime value of $1200.

So, that initial $50 acquisition spend ultimately results in $1200 revenue and a healthy profit so the Facebook ads were actually a good investment.

(Just in case anyone is planning on starting a salon: I completely made up all the figures above – I have no idea of staff and product costs etc for beauty salons!).

So, there you have it. This is by no means an exhaustive list, but are the methods I use the most often when recommending budgets or when clients ask me to give expected results after handing me a budget.  Would love to hear how other people go about it - leave me a comment below!