When I first learned how to ride a bicycle, I still remember being frightened because I’d never done it before and was scared of falling.
I got the same feeling when I first started getting into paid Facebook advertising. The process can be intimidating when you are doing it for the first time.
Even if you are an ace marketer or a newbie, creating budgets seems like a guessing game.
We need to do some basic maths. Once when we are done, you will get a clear idea for budgeting your ads.
Let’s do some reverse engineering to figure out your overall campaign budget.
I’ll explain the entire process with an example.
Start setting up your Goal:
This is one of the most crucial steps when you are calculating your budget.
Because you can only figure out how much is the reasonable amount you need to spend to achieve your real goal.
By doing this, you can easily make management decisions for your agency/client.
I have listed down some of the Facebook ad campaign goals:
- Generating leads.
- Selling product for a certain period.
- Engaging the post to convey your marketing message.
- Acknowledgment for a specific offer.
- Getting video views for the promotional video.
I will take the 2nd example to explain how to calculate your Facebook ad budget.
Learn How To Do Reverse Engineering:
When I say reverse engineering, I mean you need to start at the bottom and move one step at a time backward in your conversion sequence.
For example, If you want to sell 200 products through your campaign.
What step do you need to follow before making a sale?
Suppose this is for generating leads. If your expected conversion rate is 10%, which means you need about 2000 leads to hit the goal of 200 sales.
Take this example and do the reverse engineering until you reach the top of your Facebook marketing funnel.
Calculate How Big is Your Ideal Audience:
Now your aim is to get 2000 leads, which will help you generate 200 sales, but first, you need to understand how big the audience size you need.
The thing is we don’t have any control over how many times our ads are being served per person.
This is where you need to set boundaries and estimations also come into the picture:
- Set a timeline for how long you will run the ad?
- How likely will Facebook serve the ad to the target audience?
How likely will Facebook serve my ads to the target audience:
Once you plan and understand how long you will run the ads, you also need to estimate how long your audience is active on Facebook during the entire campaign.
When you are running the same ads, and you plan to keep it running for at least 3 months, then you can expect 99% of your audience to be logged in to their Facebook account at least once.
Calculate Your Target Impression Count:
If you want to calculate the target impression count, you need to understand the ad frequencies (average number of times a user sees your ad).
We will continue with the same example: We are targeting a 3-month long campaign; you need to set an average frequency of 10 to 15 displays per lead.
With an earlier calculated audience size of 2000 leads and ad frequency estimates of about 10 to 15 , you should strive to hit a total ad impression count of 10,000 to 15,000 (leads x frequency).
Now Evaluate the CPM (Cost Per Mile: This is the price you pay for 1,000 impressions on your Facebook ad)
Now you have set an ad impression count ,next you need to know how much these ad impressions will cost you.
The CPM differs from industry to industry and also depends on the ad objectives
When you are running the website conversion ads then ₹100 (CPM) is a good estimate to target with.
Calculate your cost per ad set:
We’re now heading to the final set of our budget calculation.
To figure out how much the cost per adset will be, you just need to multiply your targeted ad impression with the estimated CPM and divide it by 2000.
We will continue with the same example. Just multiply 10,000 ad impressions by ₹100 and divide by 2000. The result will be ₹500 which will be your daily budget.
That sounds unreal.
That’s because we have just assumed a conversion rate of 10%.
This figure is very high to calculate an ad budget.
Because the actual formula for conversation rate is: ( Number of people who sees and click your ads X Number of people who clicked your ads and bought your product)
As everyone who sees your ads will not click on them, the conversion rate will be a little lower.
You can see that we need more leads to repay for the lower actual conversion rate, which interprets into more impression counts which will be a big budget for the ad set
Add up everything and you will get your overall ad campaign budget
This calculation is based on the assumption which we always calculate for our clients ads and also for your agency
To calculate the overall campaign budget, you need to repeat the above steps for every adset, then sum up all the costs to get the final budget.
Hope the above case study with calculation; you can plan, visualize and execute your Facebook ads with the right budget.
Arpit ward is a founder of Social Proto, a Digital Ad Agency in Mumbai which is solely focused on Facebook Marketing. He helps business owners create a smooth & profitable customer acquisition process, which helps them to increase their return of marketing spend.