How to Calculate a Facebook Ads Budget?

How much should you spend on Facebook Ads? It depends on your business, your cash flow, your current return on ad spend, and how much you need to be profitable. We can do some basic calculations to get you started. You’ll need to know:

-The cost of the product or service you’re advertising

-The cost of each lead you get through Facebook Ads (If you don’t know this yet, get testing!)

-The current conversion rate for those leads

-How much you need to sell to be profitable

Let’s say that you’re selling a product that costs $1,000 and you want to make $20,000 profit. Your ads guide people to a free sample and about 3% of the people in the webinar will go on to buy the product. That’s 30 people out of every 1,000. To make 30 sales, you need to get 1,000 leads at $10 each. That means you’ll be spending $10,000 on ads, to make $30,000 in sales, with a net result of $20,000. But if your cost per lead rises above $10, you’ll start falling below that $20,000 threshold for profitability.

If you have a lower-value product or service, then your cost per lead will have to be lower. For example, with a product that’s worth $100, the same conversion rate, and a lead cost of $10, you’d be losing money because your margins are much smaller. You’d be spending $10,000 to make just $3,000 in sales. The figures you’re working with will change over time and they’ll be different for every product, service, and ad campaign you run. So, the easiest way to juggle these figures is with a spreadsheet. Use it to track your product costs, lead cost, conversion rate, and targets for leads and sales.

Here’s another example, let’s say you create a spreadsheet for your latest product. You know that your current lead cost is around $5, and you want to get 1,000 leads with your first ad campaign. That means you’ll be spending $5,000. You can use the spreadsheet to check how many of those thousand leads will convert to a sale, then multiply it by the value of your product to figure out whether you’ll make a profit over your ad spend.

If your Facebook ads are making a profit, keep them running! But don’t keep running exactly the same ads forever. A good return on ad spend means more power to test. So when something works well, keep testing new variations on it. Try lookalike audiences, similar ad creative, or new lead magnets. Try to set aside about 10% of your ad budget for continuous testing so that you can keep scaling up when things go well. The more success you have, the more you’ll be able to test, creating a positive feedback loop.