Chris Young
The origin story of Facebook (Meta) is the story of an underdog company that grew to be one of the largest multi-national software companies in the world with over 3.6 billion monthly users.
Meta, now comprising Facebook, WhatsApp, Instagram, and a number of other smaller platforms helps keep the world connected and is, itself, creating other successful underdog stories. One of the main ways that Facebook can do this is through advertising and allowing businesses of all sizes to access their warehouses of user data. However, one of the main questions that plagues businesses starting a Facebook advertising campaign is how much they should spend.
There is a ditch on either side that companies can fall into with their Facebook advertising spending. On one hand, a company could spend too little and the campaign could fail, not because it’s a bad campaign or a bad product, but because there wasn’t enough gas in the proverbial tank to get it far enough for long enough. On the other hand, the campaign could genuinely be set up with the wrong parameters and messaging, and no amount of money will make that lead balloon fly. Pouring money into this kind of campaign is equally as dangerous (if not more dangerous) as not giving it enough since it’s equivalent to throwing money away. So where is the sweet spot that makes the red lines turn green and the numbers on the dashboard slowly click into triple-digit positives? The good news is that there’s plenty of data to know precisely how much you should be spending on your Facebook campaigns.
Facebook advertising has become an indispensable tool in today's digital marketplace, offering unparalleled reach and engagement opportunities for businesses across all sizes and sectors. Their extensive user base ensures that businesses, from local startups to global corporations, can target their specific audience in a way that’s as cost effective as it is precise.
The platform's advanced targeting capabilities allow advertisers to zero-in on their ideal customer demographics, interests, and behaviors, enabling a highly tailored approach to advertising. This level of customization not only boosts the relevance of ads to each user but also increases the likelihood of engagement and conversion netting better returns on investment. Moreover, Facebook's cost-effective nature becomes evident when budgets are properly managed. The platform operates on a pay-per-click or pay-per-impression model, giving businesses control over how much they spend. This flexibility is particularly beneficial for small to medium-sized enterprises (SMEs) that might have limited marketing budgets but still wish to make a significant impact. By utilizing Facebook's detailed analytics and reporting tools, businesses can continuously optimize their campaigns for better performance and cost-efficiency, ensuring they get the most value from every dollar spent.
Defining Key Performance Indicators (KPIs) is a critical step in the Facebook advertising process, serving as a compass to guide budget decisions and campaign strategies. KPIs are specific, measurable outcomes that businesses use to evaluate the success of their advertising efforts. These indicators should be closely tied to the company's overall marketing objectives, whether it's increasing brand awareness, generating leads, or boosting sales. Setting clear KPIs allows businesses to quantify their advertising success and make informed decisions about where and how to allocate their budget. For instance, if the primary goal is brand awareness, a business might allocate more budget towards reaching a wider audience. However a goal of increasing sales might lead to focusing the budget on targeting users who have previously engaged with the brand or shown interest in similar products.
Click-through rates (CTR) are crucial for understanding how engaging an ad is to the audience; a higher CTR indicates that the ad is resonating well with its intended viewers. Conversion rates shed light on the percentage of users who take the desired action (like making a purchase or signing up for a newsletter) after clicking on the ad. This metric is directly tied to the effectiveness of the ad in driving business outcomes. Customer acquisition cost (CAC) is another key performance metric, especially for companies focused on growth. It helps businesses understand the cost involved in acquiring a new customer through their advertising efforts, which is instrumental in evaluating the ROI and fine-tuning the advertising strategy.
The key metrics identified must be matched to the results that the campaign is designed to achieve and which is then matched to the overall business goals. This alignment involves understanding the broader business objectives and translating them into specific, actionable, and measurable advertising goals. For example, if a business’s objective is to expand its market share, the KPIs might focus on reaching new demographics or geographic locations through Facebook advertising. Similarly, if the goal is to increase repeat purchases, the focus might shift to retargeting existing customers and measuring customer lifetime value. By aligning KPIs with business goals, companies can ensure that their Facebook advertising campaigns are not only effective in terms of engagement and reach but also contribute significantly to the business's growth and success.
The importance of starting with a testing budget in Facebook advertising cannot be overstated. By dedicating a portion of the budget to testing, businesses can experiment with different ad creatives, target audiences, and messaging strategies to identify what resonates best with their audience. This approach mitigates the risk of committing a substantial budget to unproven strategies, enabling advertisers to make data-driven decisions.
A/B testing, or split testing, is a fundamental method used during this phase. It involves creating two versions of an ad (A and B), each with a slight variation in elements such as the ad copy, image, or calls to action. These ads are then run simultaneously to similar audiences to see which version performs better in terms of predefined KPIs like click-through rate, conversion rate, or engagement. By examining which variations of ads perform better, businesses can allocate their budget more effectively, focusing on the strategies that yield the best return on investment. The insights gained from testing enable advertisers to refine their overall strategy, ensuring that when the time comes to scale up the campaign, every dollar spent is optimized for maximum impact and efficiency.
Unlike a traditional auction where the highest bidder wins, the Facebook ad auction is designed to provide value both to advertisers and the users. At its core, this system determines which ads to show to a particular user at a given time, based on several key factors.
The auction process takes into account the bid amount, the estimated action rates, and the ad quality and relevance. The bid amount is what advertisers are willing to pay to have their ad shown to their target audience, either through a manual bid or an automatic bid set by Facebook's algorithms. The estimated action rates predict how likely a user is to take the desired action (like clicking or making a purchase) after seeing an ad. This estimation is based on past interactions of the user with similar ads. Ad quality and relevance, on the other hand, assess how engaging and pertinent the ad is to the audience, which is influenced by factors like user feedback and past ad performance.
To maximize efficiency within this ad auction framework, advertisers need to balance their bid amount with the quality and relevance of their ads. While a higher bid can increase the chances of an ad being shown, it's the combination of a competitive bid with high ad quality and relevance that truly optimizes ad performance and cost-efficiency. It's also important for advertisers to continuously monitor and tweak their campaigns. Testing different ad elements, targeting different segments of the audience, and adjusting bids based on performance data can help in finding the sweet spot where the cost is optimized without compromising on ad performance.
Each business, with its unique goals and resources, requires a distinct approach to budget allocation. There are several methods for determining an appropriate budget, each aligning with specific business characteristics and objectives. Businesses may budget based on the size of the business, which considers the varying financial capabilities and digital marketing needs of small, medium, and large enterprises. B2B (as opposed to B2C) budgeting strategies address the differing approaches required for businesses targeting other businesses versus those targeting consumers directly. Finally, Percentage-based budgeting is a method that ties advertising spend to a certain percentage of sales or overall marketing budget. With these three methodologies, there is no right or wrong answer; the following methodologies are merely heuristics to help companies understand different approaches to advertising.
Budgeting for Facebook advertising varies significantly across small, medium, and large businesses, each demanding a unique approach based on their resources, market presence, and objectives.
Small businesses, often with limited budgets, need to focus on highly targeted campaigns that deliver the best ROI. They should prioritize cost-effective strategies like localized targeting and audience segmentation to ensure that their limited resources are used efficiently. A small business is advised to allocate a daily budget of $20 to $200 for Facebook ads, with the understanding that higher spending often correlates with better returns, while lower spending may yield lesser results. However, these figures are averages, and actual spending can vary based on individual business needs and outcomes.
Medium-sized businesses, with slightly larger budgets, can afford to experiment more with their advertising strategies. They can allocate funds for broader campaigns, A/B testing, and delve into more sophisticated targeting options to refine their audience reach. These businesses should balance experimentation with performance monitoring to ensure that their growing budgets are still being used effectively. As a general rule of thumb, Medium-sized business should spend anywhere from $6000 - $12,000 per month OR 7% of their marketing budget on Facebook Ads, whichever is the larger number.
For small B2B businesses aiming at senior decision-makers, expect longer ad funnels and more intensive retargeting efforts before generating sales, compared to small B2C businesses. B2C companies may achieve results with a $200 ad targeting a cold audience, but for B2B, direct sales results are less likely due to the nature of their buyers, who are often more deliberative and skeptical.
B2B advertising on Facebook involves a multi-stage process: starting with awareness ads to introduce the business, followed by consideration ads to drive website visits, and finally, conversion ads targeted at a custom audience to generate leads. This comprehensive approach can result in a minimum monthly spend of $1000 and could reach into the hundreds of thousands or millions for larger B2B corporations. This is a typical scenario for B2B businesses on Facebook, reflecting the need for a more nuanced and prolonged engagement strategy compared to B2C marketing.
Percentage-based budgeting links a company's Facebook advertising spend to a specific portion of its sales revenue or overall marketing budget, offering a flexible, scalable approach for businesses of varying sizes. This model involves allocating a predetermined percentage of revenue or marketing funds to Facebook ads, adapting to the company's financial performance and market conditions. This strategy aligns ad spend with the overall financial health of the business, allowing real-time adjustments based on sales or marketing needs, particularly beneficial in fluctuating markets.
Furthermore, Facebook ads provide a convenient option for setting a budget, with Facebook optimizing the ad spend for the best possible results. A sustainable and advisable approach for percentage-based budgeting is investing around 6% of revenue in ads. Starting with a small daily budget allows for effective gauging of ad performance, enabling subsequent budget adjustments based on the effectiveness of the ads and business necessities. This combination of percentage-based budgeting and tailored Facebook ad investment offers a strategic, adaptable approach to digital marketing, ensuring alignment with broader financial objectives.
There is no hard and fast rule for how much you should be spending on your facebook ads. However, companies who find the sweet spot can almost turn facebook into a sort of money printer–put $1 in, and get $2 out. In the grand scheme of things the overall budget of a Facebook campaign is only one of the many elements that makes the campaign successful. Ad copy, visuals, audience segmentation, as well as proprietary assets like websites and nurturing campaigns are all additional considerations that will affect the success of your facebook ads.
Partnering with a digital marketing agency like Be More Digital with deep experience in Facebook advertising can be a great way to skip the headache and get right to the new leads. Our Meta ads and PPC specialists have decades of combined experience running paid advertising and can work alongside your company to generate fast, high-quality results. Get in touch with our customer success team today to find out more about running LinkedIn ads or take a look at our case studies to see our experience.
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