Calculating Your Optimal Facebook Budget

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It can be difficult to know where to start when it comes to selecting a budget for your first Facebook campaign. But there are some important considerations you can make ahead of time to help you set realistic expectations based on the specifics of your campaign and goals.

The power of your Facebook advertising dollar depends on many factors including ad type, audience composition, and ad delivery schedule. Luckily, you can fill in most of the blanks in the budgeting equation before you spend a cent.

After you’ve created your business’s Facebook page and set up a Business Manager account, you can determine realistic projections for return on ad spend by following the steps below.

Go through the first steps of the campaign creation process, plugging in basic campaign information. Follow the prompts in the Ads Manager to:

  1. Choose an Ad Type Based on Your Campaign’s Objective
    • What do you want to achieve by advertising on Facebook? More importantly, what action do you want Facebook users to take when they see your ad? Ad types can prompt users to ‘like’ or follow your company page, click to your website, download your app, or take one of many other actions.
  2. Define Your Audience by Selecting Your Targeting Parameters
    • Who do you want to be engaging with your ads? Deliver ads to the right Facebook users by utilizing some of the many targeting parameters offered, ranging from user interests to demographics to shopping behaviors.
  3. Determine When & How Your Ad(s) Will Be Delivered
    • For what date range do you want your ads to run? How do you want to bid on placement?
      1. If you’re not sure how to make the most of your budget (concentrate spend in shorter time frame or longer period), you can test out a couple options at various spends.

Once you have set these variables, you are ready to do some calculations to figure out how different combinations of spend and delivery range will result in a positive return.

Use reach estimates to calculate estimated results at various spends. Create a spreadsheet where you can record what your expected campaign results will be when adjusting budget and/or delivery date ranges. See the figure at bottom for an example of what this spreadsheet can look like.

To find ROAS, we need 1) spend and 2) revenue. While identifying spend is straightforward, we have to calculate an estimated revenue based on the number of anticipated converted clicks from your ad campaign:

  • Step 1: Identify estimated total clicks
    • Multiply [daily reach] X [# of days your ads will run at the given date range] X [your estimated click-through-rate (CTR)]
      1. If this is your first time advertising on Facebook, you likely won’t know what a realistic CTR is – in this case, use an industry benchmark
        • I always recommend rounding down a bit so that your estimate errs on the conservative side
      2. Once you have run some ads on Facebook, you’ll have a better idea of what your CTR typically is and can replace the industry benchmark with the CTR that reflects your ads’ typical performance
      3. Note that because Facebook provides a range for estimated reach, you should calculate both ends of the range to understand both worst and best-case scenarios
  • Step 2: Estimate attributable revenue
    • Multiply [your estimated clicks] X [your conversion rate (CVR)] X [your average order value]
  • Step 3: Calculate ROAS
    • Finally, calculate [revenue] / [spend] for each combination
  • Step 4: Weigh your options
    • Look at the ROAS ranges each combination of spend and delivery result in and make a budgeting decision based on how effectively each is expected to perform.

Key Questions to Keep in Mind:

After your first campaign or two are complete, re-evaluate the following factors and adjust your return calculations and corresponding budget decisions accordingly:

  • Estimated reach – Was Facebook’s estimate low or high?
  • CTR – Do your campaigns on average perform better or worse than the benchmark industry standard used in your calculation? Is there a lot of variation in CTR between ads or audiences?
  • CVR – Is the conversion rate of those acquired through Facebook lower or higher than your average?
  • Average Order Amount – Is the value of each individual acquired through Facebook lower or higher than your typical customer, on average?

As your Facebook campaigns get more sophisticated, you can also start to test different audience compositions, ad types, budget allocations between multiple ad groups, and more.

 

Sample Social Media Budget Matrix – tests different budgets and delivery dates.

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