Defining Your Facebook Ads Budget

A common question people wonder is how much should you spend on Facebook ads per day?

This is difficult to answer without knowing a few things. Stick with me while I explain ?

First, you have to understand that Facebook ads requires momentum to work well for you.

In a previous lesson, I talk about Facebook’s optimization algorithm. Facebook wants to help you do well with ads. But in order to do that, you need to feed it data. And in order to collect data, you have to spend money to get it, or do a ton of organic marketing to give the pixel data.

Facebook has “labels” or “tags” on people that identify them. We’re labeled by our political views, religious views, shopping habits, interests, where we hang out, etc. including, how we interact with ads.

There are generally three groups: engagers, clickers, buyers. Yes, there can be people who overlap in all three groups, but there’s not many people like that.

Now, we all want buyers, right? Who cares about engagement and site traffic if none of it converts into sales?

Facebook has the ability to find MORE buyers for you, if you can show Facebook who your buyers are.

The catch is that you have to show Facebook sufficient data on that, and you cannot reach “sufficient” data with a small ads budget.

The more money you spend initially, the more data you’ll collect in a shorter period of time.

Rather than thinking of this from a “how little money can I get away with doing FB ads with” perspective, you want to come from a “how fast can I get past data collection mode”.

The former will keep you stuck with little results for a long time, and you’ll be left wondering why ads don’t work for you.

Second, you need to know your break-even/max Cost Per Acquisition (CPA).

That means, how much are you able to spend to acquire a customer (who has made an order) before you lose money?

So you’ll have to look at your pricing and count your materials, supplies, cost of goods, labor, etc. If you need a refresher, go through Module 2 of ASAD again.

Here’s an example with my cupcake necklace:

Another way to find your max CPA is just find out your Profit from your AOV (average order value). It will give you about the same answer.

OR

Take your sale price from your AOV and deduct your costs.

This number can be an average, and will also serve as your maximum CPA. Break-even CPA = Max CPA. Same thing for our purposes.

The goal is to obviously spend less than your max CPA. But now you’ll know what your limit is.

? And any ads you create that go above your limit is a poor performing ad.

And over time as your ads optimize, your costs will drop.

I’ve found that this number is better at defining your daily/monthly ads budget.

Max CPA is just a number that tells you whether or not your FB ad tests are passing or failing. If they’re failing, you stop those ads and test new ones. If they’re passing, you keep them on and figure out how to lower the cost it takes to make a sale.

Having this pass/fail meter will help a ton later!

Example scenario:

Say your max CPA is $20 so anything under that and you’re profitable.You could be testing 3 separate ad sets (audiences) at $10/day each for $30/day total.

• Campaign
  • Ad Set 1 ($10/day)
  • Ad Set 2 ($10/day)
  • Ad Set 3 ($10/day)

It may not be likely to acquire a customer at $10 or under (even though we’ve done so!) so based on your max CPA, you would expect sales to come in at Day #2 of your ads running.

At the end of Day #2, you’ve spent $60. $20 per ad set. If you have not made a sale with those audiences at this point, it’s not a good sign, but you should keep testing more because Facebook is gathering data, and things are expensive during this stage.

So we keep pressing on until Day #4. You’ve spent $120. $40 per ad set. You should have expected 2 sales from each ad set by now. If the ad set got you zero sales, it would be turned off and you’d start testing new audiences.

Alternatively, if you wanted to and had the cashflow for it, you can spend all $40/day on each ad set for just one day. At the end of the day, if the ads didn’t convert, you would turn them off and test new audiences.

See how budget dictates your speed?

Now you know this is the process, you can better decide how much you’d like to spend on ads.

It’s purely based on how much your max CPA is and how fast you want to get data.

In a different lesson, I mentioned you need to be prepared to spend $500-1,000+ on just testing ads and don’t even expect to be profitable during this stage.

If you can spend $30+ a day, you’re doing great and that’s healthy and gives you good momentum.

The minimum is $10/day. Just know your results will come in more slowly this way.

Here’s another max CPA math example:

Answer: Based on your earrings and necklace profit numbers, you have a 83% and 81% profit margin respectively. I just took 15 divide by 18… and 39 divide by 48 to get those numbers.

So if you want to be safe, you can say your profit margin is 80%… and that’s also your max CPA, where your MAX is when your ad spend is 80% of your sales generated from ads.

Knowing this, when you look at your FB ads data, you can know quickly whether or not your ads were profitable.

Facebook will tell you how much sales each ad generated and how much you spent to make those sales.

So say you got $100 in sales and you spent $30. That’s only 30% of your sales generated. You’re still profitable because that’s under your 80% max CPA.

Or to keep things simple so you have a dollar amount, let’s just use your AOV of $46 x 80% = your max CPA is $36.80.

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