How Much Should I Spend on Facebook Ads? Our Guidelines for Maximum Effect
One of the questions I frequently get is: “How much should I spend on Facebook Ads?” There are a lot of conflicting opinions going around on this topic.
Most people will tell you that Facebook Ads are not as effective as Google Ads when it comes to actually selling products. But, that doesn't mean there isn't a place for them in your advertising strategy.
They're effective for retargeting potential customers, growing your audience, and increasing brand awareness. Three very important aspects of eCommerce.
So you need to make sure you’re investing the right percentage of your advertising budget in them to get the results that you want.
At the end of the day, though, every business is different. So we’re going to break Facebook Ad spend into three stages that you can apply to your business.
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How Much Do Facebook Ads Cost in 2020?
First things first, you may be wondering "How much do Facebook Ads cost?"
And the answer is: it's impossible to say for certain. The cost of an ad is determined by an internal Facebook ad auction.
These ads go up and down in cost depending upon the demand (how many people want to show an ad) and the supply (the potential customer pool).
Therefore, if Facebook receives an influx of users that fit the market you're trying to reach, the supply has gone up.
Consequently, the cost for you to show an ad will go down. The cost would also go down if several of your competitors were to stop advertising on Facebook (wishful thinking).
However, you'll never spend more than what you set your budget at.
If your budget is set at $5 a day, Facebook will do its best to show your ad to as many people as possible. This means that they will likely not show your ad for a potential highly valued customer.
This is because their click may cost $3.96. That wouldn't leave much of your budget for the rest of the day.
Instead, they'd opt to show your ad to 10 different people that are valued at $0.49 per click.
Stage One: Optimizing For Maximum ROI/ROAS
If you're just getting started with Facebook Ads and don’t have a large ad budget, start here at Stage One.
To get the maximum return on your ad spend, you’ll want to start by taking 10% of your total advertising budget for the month and spend that on dynamic product ads.
Dynamic Product Ads: Who To Target
Make sure you set your ads up to target people who visited your website but didn’t make a purchase. The purpose of this type of ad is to re-capture those website visitors, bring them back to your site and have them complete a purchase.
If you’ve set up your dynamic product ads correctly, the person who went to your website but didn’t make a purchase will see the product image on Facebook along with a customized message from you. No matter the type of message you choose, your ad should give them an incentive to return to your website and complete their purchase.
If your product is expensive, wait a week to start retargeting these customers. This will give them some time to consider whether they wanted your product or not. The people that still want it will be more likely to complete a purchase.
If you sell a cheaper product, retarget them sooner than later. They may have gotten distracted and didn't complete the purchase. Less consideration is required for people to purchase less expensive items.
Using a super-targeted Facebook ad like this means you’re reaching people who are already interested in your product. That means you don’t need to spend a huge amount of your ad budget and the amount you do spend is very well spent because it’s targeting warm leads.
Stage One Budget Breakdown
When it comes to actual dollar amounts, you want to use 10% of your advertising budget each month on these stage one dynamic product ads.
For example, if your ad budget next month is $1,000, take $100 and spend it on a dynamic product ad retargeting campaign.
Many businesses stay at Stage One because their goal is to just get a high return on their investment or ad spend. This is the system that will get you that and these numbers do scale well.
So, even if you had a larger ad spend budget and were willing to spend $10,000 each month, you could still put 10% into your Facebook dynamic product ads for remarketing and get great results.
Stage Two: Maintaining High ROI While Bringing In Additional Sales
If you’ve successfully been running dynamic product Facebook ads and you're comfortable with the ROI you’re seeing, then you might be ready to move into Stage Two.
As your business becomes more profitable and you can invest more into your ad budget, you can maintain a good ROI while also bringing in new sales. These additional sales come from website visitors who also saw your dynamic product ads but still haven’t completed a purchase yet.
Use Holiday Promotions To Close More Sales
Holidays are the perfect time to run promotions. Every time you create a promotion attached to a holiday, create Facebook ads to promote it. These holiday Facebook ad campaigns are going to be targeted a little differently than your Stage One dynamic product ads.
How To Target Your Holiday Promotion Facebook Ads
These ads need to be shown to a few different audiences:
- Website visitors
- Anyone who has engaged with your Facebook page
- Anyone who has engaged with your Instagram page
- A lookalike audience of your best customers
(If you’re a member of Drop Ship Lifestyle, you can see exactly how this is done in our Course on this topic)
Creating A Lookalike Audience
A lookalike audience is created from people who have similar traits to your existing customers. Shopify makes this very simple. Download a report that lists customers who have spent the most money with your business in the past year. This is the group you’ll use as a reference to create your lookalike audience.
A lookalike audience will likely give you a low return on ad spend investment, but it's something you should consider if you’re ready to experiment with your Facebook ads because it could bring in new sales.
Stage Two Budget
Remember, as you move into Stage Two, you need to keep running your Stage One ads. As you advance, don’t stop what you were doing, instead add on new campaigns.
To best calculate how much money you should be spending, use the following equation.
For this example, let’s say that you want to do a 4th of July holiday promotion and show it to your website visitors and everyone who has engaged with both your Facebook and Instagram pages. Don’t worry about trying to figure out all those numbers. Once you’re inside your Facebook account, Facebook makes it easy and will actually show you the number of people in your audiences.
My audience Size is 100,000. My CPM (cost to reach 1,000 people) is $5. I want my potential customers to see my ad once a day over a four-day holiday weekend. So you want them to see your ad 4 times.
((100,000/1,000)x5)x4) = 2,000
Therefore, I should bump my ad budget up to $2000 in stage 2.
Make sure to run this equation each time you set up a Stage Two ad. This is how we do it at Drop Ship Lifestyle and how we recommend all of our community members handle Stage Two ads.
Notes on CPM:
The best way to get your CPM is to go into a Facebook ad you’re already running. It will tell you your CPM.
Stage Three: Lower ROI With The Possibility Of Increased Additional Sales
This stage is one that most businesses will never do. Remember, even Stage Two is something a lot of businesses don’t do because the farther you get into these stages, the lower return you’ll see on ad spend.
The only reason your business should consider Stage Three is if your store is just completely crushing it in sales. Your other ads are working, your Google campaigns are working, you’re at peak scale and are wondering where you can find a new source of customers. That’s when it’s time to try Stage Three.
Give Something Away To Attract New Customers
When you’re at Stage Three, create something you can give website visitors for free, like a downloadable resource. Advertise this free resource in a Facebook ad and direct traffic from it to a specific landing page. This landing page should be hosted on your website and it should allow them to download the free resource in exchange for their email address. Once someone has opted-in and given you their email address, follow up via email to try to turn that visitor into a customer.
The reason this type of ad doesn’t have a high ROI like Stage One ads do, is because you’re not targeting a person who is already interested in your product(s). Someone using Facebook that clicks on an ad for a free download is nowhere near as ready to purchase a product as someone who clicks a targeted Google shopping ad.
How To Target Your Giveaway Ads
When you’re ready to use this type of ad, you want to use “interest-based targeting” on Facebook.
For example, if you’re selling surfboards, you want to target people who have shown interest in surfing, surfboard brands, and specific surfers.
Stage Three Budget Breakdown
There aren’t any guarantees with this type of ad campaign. You might have 1,000 people go through your entire ad and email sequence without buying. Or you could have 1,000 people go through the sequence and have 10 or 20 people buy. The point is, you can’t know how this will work for your business until you have a sample size.
Ideally, you want to get at least 1,000 people to click your ad, give you their email address and land in your email follow-up sequence so you can have a good sample size for the email marketing step of your campaign.
The amount of money to spend on this type of ad depends on your CPL (cost per lead). For example, if you set up Facebook campaigns like this and your CPL is $3 on average, that means you should be willing to invest $3,000 to get those 1,000 people to click on your ad and give you their email address.
Use the information that you gain from running ads like this to sharpen your future ad campaigns. To get even more information, run A/B tests on your traffic. This entails creating two different versions of your landing page and directing 50% of your traffic to one version and 50% to the other. This way, you're able to see what attracts more leads and which leads are more likely to become customers.
Are Facebook ads worth it?
They can be. If you follow our guidelines, you should see a high return on investment and low overall ad spend.
How do I pay for Facebook ads?
- Navigate to your payment settings in Ads Manager.
- In the Payment method area, select Add Payment Method.
- Choose the payment method that you want to add & provide your information.
- Click Continue.
- Follow any additional instructions.
What is the minimum budget for Facebook ad?
If you're paying for ads, the least you can spend is $1 a day.
Wrapping Up: How Much Should I Spend On Facebook Ads?
Answering the question, “how much should I spend on Facebook Ads” or “how much do Facebook Ads cost” isn’t a one size fits all response. You need to consider which stage your business is in and choose an ad strategy that makes sense for you. Try some things, get some wins, make some mistakes, and then learn from both.
HERE ARE YOUR NEXT STEPS...
Be sure to register for our next free web class. Then, check out our guide on starting a dropshipping business.