How much should you spend on Facebook ads? Then how should you allocate the budget between campaigns, and then within the ads for each campaign? Let’s walk through the strategy behind effective budgeting, then tactically how you implement it. We start by understanding Facebook’s point of view. Facebook wants to maximize their revenues and they do that by getting as much money as they can per thousand impressions (CPM = Cost Per Thousand) of ad inventory. Don’t ask why it’s per thousand. It’s just an industry standard handed down long ago, where M is Latin for Mille (thousand). Whether you bid CPM, CPC, oCPM, or CPA, you’re still effectively paying based on how many impressions you’re serving. If what I just said was a bunch of alphabet soup to you, hang with me for a minute. It will all make sense. So if you think bidding CPC means a “better deal” because you’re “only paying when there’s a click”, you’re wrong. Watch what happens when one of your ads has a third of the CTR (click-through rate) of another ad on the same audience, you’ll pay three times the CPC. Why? See point 1 about Facebook looking at maximizing its revenues. • Run two ads, CPC and CPM with the same placement (newsfeed only or Right-Hand Side only, for example), and you’ll see the net CPM price should be similar. • Run multiple ads with different creatives against the same audience, and even though they have different CPC/CTR combos, the net CPM is still similar. So what you’re really paying for is how much inventory you’re using. And that means what drives your cost is how big your audience is. So if you’re targeting audiences of hundreds of thousands, no matter how you’re bidding, you’re squandering inventory. Assume that Facebook needs to make $5 per thousand ads they serve (CPM). If you have a $10 daily budget, then you can serve up 2,000 impressions a day. If you want to be able to have 5 ads run at any point in time, that means 400 impressions per day per ad. So if one of your ads has an audience target of 100,000 people, then it will hog the inventory away from the other ads in the campaign. Let’s calculate your target audience sizes. Take your daily budget for a campaign, divide it by 5, and add 3 zeros. So if you have a $100 daily budget, then you have 20,000 impressions per day. I like to have 5-10 ads in a campaign: for the sake of simple math, call that 10 ads. That means each ad can consume 1/10th of the 20,000 impressions per day or 2,000 impressions. You’re not going to be able to reach everyone in your target audience. They might not be online when your ads are live, or someone else’s ads might serve instead of yours. So assuming you are reaching 50% of your target audience, you can target an audience size that’s DOUBLE the impressions you want to serve. In other words, if I want to serve 2,000 impressions on an ad, then I’m going for an audience size of 4,000. Tune your ads to your ideal audience size. You can have some ads that are well below your target audience sizes, such as when you’re doing workplace targeting, custom audiences, or ads that are restricted by size (maybe by geography, a small precise interest, or an ad that has many filters to whittle down the audience size). But don’t go too far above your target audience size, for the risk of that ad hogging all the inventory in that campaign. If your audience target is too big, then add more filters: • Add a FOF (friend of a fan) filter. Watch the audience counts drop significantly unless you have a large fan base. Assume that the average fan has 330 friends. So if you have 2,000 fans, then the FOF audience is 660,000 so you’re crossing against that initial target. • Restrict by age, gender, or location. People in your hometown are more likely to convert since they know you and are more likely to be influenced by your existing customers. • Filter by a partner category or broad category. How about income, whether they have kids, the kinds of items they have bought in-store, the kind of car they drive, their profession, their ethnicity, and so forth? Be careful here, since these can cut down your audience size drastically. Facebook used to tell us with fine accuracy what our counts were. Many years ago, if the audience was really small, they would say “less than 20 people”. Now, in 2021, they just say “under 1,000 people”, which means it could be anywhere from zero to 999 people in that audience. Now stack up your audience, consideration, and conversion campaigns. Allocate the percentages you want on audience, consideration, and conversion. Even if you really want conversions, you still need to put some amount into audience and consideration, so that your revenue factory has a steady stream of traffic flowing from audience to consideration to conversion. Even if you really wanted more conversions, you’re limited by how many friends or fans you have and the potential size of your universe (especially if you’re a local services provider). We once talked to a daycare in a suburb of Phoenix that asked for 10,000 new enrollments a month. There are just not that many kids in daycare in the whole metro. If you did allocate more than 50% of your budget towards conversion, then you risk a low conversion rate (an unacceptably high cost of conversion) and alienating people on Facebook with too many self-promotional ads in their newsfeed. If you have a small fan base, you’re going to dis-proportionately allocate on fan growth and consideration so you can build up your company’s awareness and word-of-mouth power. Keep in mind that this is a long-term play, no immediate sales here. It’s about nurturing. You certainly can adjust