Whether you are new to Facebook advertising or you’ve been experimenting with it for a while, it can be daunting to figure out the correct budget allocation for your ads.
Too much and you’re wasting money. Too little and you’re losing potential sales.
So how do you find that sweet spot?
Unfortunately, there is no simple answer to that. But we have come up with some guidelines that can give you a starting point. We suggest that initially you assess your ad’s performance every 48 hours and tweak your budget according to the results you are seeing.
Sound complicated? Don’t worry, we’ll take you through the entire process step-by-step, including tips on how or when to adjust your budget.
If you are already familiar with the basics of setting up a Facebook ad, you can skip this section and go straight to the section on Budgeting for Cold Audiences. Otherwise, let’s start at the beginning.
The first thing you need to determine is your audience. These are the people whom you want to show your ad to.
Your audience can be divided in hot, warm or cold. This is a topic for a whole different blog post, but for the purposes of this article, I’ll give you a quick introduction.
Cold audience: Potential buyers who haven’t been exposed to your brand yet.
Warm audience: Past purchasers and visitors who have visited your store between 30 to 180 days ago.
Hot audience: Past purchasers and engaged visitors who have been to your store in the past 30 days.Ads served to Hot or warm audiences are known as Retargeting ads.
You can set a Lifetime Budget or a Daily Budget for your ad.
We recommend running retargeting ads for your hot and warm audiences continuously. This means that you would use a Daily Budget for these audiences.
For a cold audience, you could run either of the following:
1. A long-term, running ad campaign with tested, high performing audiences. For this we would suggest a Daily Budget.
2. A short-term campaign to test the efficiency of a new audience. For this, you could either run a continuous campaign with a Daily Budget and end this manually whenever you feel you have definitive results, or you could decide to run your test for a fixed time period—say 1 week—and allocate a Lifetime Budget which Facebook will then distribute evenly for the duration of the campaign.
When you start advertising to a new cold audience, there is one pressing question that you need to answer—is this audience working?
To test this, we have come up with a formula based on our experience working with hundreds of e-commerce brands.
Whenever you are testing a new audience, your daily budget for each campaign or ad set should be 1.5 to 3 times your Average Order value (AOV).
This will give you enough data to know whether this audience is worth continuing with. Once you know whether the audience is a ‘good’ one for you, you can scale the budget up or down based on your capacity to spend as well as your sales goals.
So, your cold test Daily Budget = 1.5x~3x AOV
Let’s say your average order value is $50.
Then your DailyBudget would be between:
(1.5 * 50) to (3 * 50)
= $75 to $150
Now, if you see a good ROAS and have the budget to spend more, increase the amount you are spending on this audience. If, on the other hand, you don’t see an acceptable ROAS within 3-5 days, then stop running this ad.
Hot and warm audiences are tracked by the Facebook pixel installed on your website. If you don’t already have the Facebook pixel installed, you can learn more about it in this blog post.
Here is the formula we use to calculate the ad budget for our retargeting ads:
Daily Budget = (Target Impressions) / 1000 * average CPM
This looks complicated, but it’s actually pretty simple. Take a look at the table below for an explanation of the terms used in the formula.
Let’s say the size of your weekly hot audience is 1000 people and you would like each person to see your ad 10 times in 7 days, then your weekly Target Impressions are:
Size of audience * Target frequency
= 1000 * 10
Now, let’s say the average Cost Per 1000 Impressions (CPM) over time for your ads is $2.
Then your Weekly Budget would be:
Target impressions/1000 * CPM
= (10,000 / 1000) * 2
And your Daily Budget would be:
= 20 / 7
= $3 (approximately)
How to decide your target frequency:
At Socioh, we have usually found that a frequency of about 5-7 per ad creative is a good place to start, but this can vary from brand to brand. Let your ad run for about a week so that it stabilizes and you get a fair idea of your CTR and ROAS.
Now try increasing your budget by a small increment, not more than 10% of your spend. See how this affects your ad metrics for the next 3-4 days. If your ROAS is improving, you can try further increasing your budget by a small amount.
When you find that the CTR or ROAS has started to decrease, go back to your previous budget. This is the optimal budget for your campaign.
Ok, so you’re off to a good start, but you’re not done yet.
Each brand, each audience is different and you now need to ensure that you are optimizing your budget for your business.
Don’t be in a hurry to experiment. Change only 1 factor in your ad at a time. So if you are experimenting with your budget, don’t touch your copy or audience, or you won’t know what caused the change in your data.
Also, wait a few days after every change before you assess the impact of your experiment. After an edit, it may take up to 48-72 hours for the ad to start performing optimally. Sometimes outside factors like the day of the week or a sale by a competitor could throw off your ad metrics, so always give your ad time to perform before you judge it.
If you are concerned about experimenting on a well performing ad, simply clone your ad and change the budget of the cloned ad.
Make sure you exclude site visitors from your cloned cold ads as these have already been targeted by your original ad and are now presumably part of your retargeting campaigns.
Just because your potential buyer has seen your ad 5 times but not clicked on it, should you stop advertising to her? After all, if the buyer starts seeing your ad too often, isn’t she likely to hide your ad, sending a negative signal to Facebook?
Well, yes and no.
You do need to make sure that your ad doesn’t seem repetitive but, at the same, time, you want to keep the potential buyer in your retargeting funnel.
The best way to accomplish this is by changing your creative regularly. To learn more about this, see our blog post on differentiated creatives for each step of your buyer’s journey.
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