The Mechanics of Facebook Ad Budgeting

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 your percentages over time between audience, consideration, and conversion. And you can adjust your total budget, as well, as you start to learn what works and doesn’t.

Building up to your total Facebook budget.

You could sum up the daily campaign budgets for audience, consideration, and conversion to get your account budget.

But if you’re just starting a campaign and aren’t sure what to spend, start off with 5-10% of your total marketing budget. Then it’s not a major risk but still gives you room to optimize.

And that number should be at least $5 a day, which is $150 a month. If that’s a lot of money for where you are now, then you might wait until your business can afford to invest in building a long-term brand on Facebook. Facebook marketing is not an immediate sales strategy, but some types of Google ads do fit the bill here, as well as FBX (retargeting on Facebook).

Run your campaigns for 6-8 weeks, which gives you enough time to optimize for results, finding the right combos of content and interest targets that produce results. You’ll continue to refine your content to see what drives the most consideration and conversion. This includes your landing pages and email nurture program (a sequence of emails your system sends out to folks who gave you an email at the bottom of the consideration campaign).

A word about bidding.
Just use the default bid of “optimized CPM” to make your life easy. When you tell Facebook your goal (to get fans, drive consideration, or drive conversion), then their system will automatically figure out which users in your target audience to hit, plus bid the appropriate price.

Only in rare circumstances should you override this. For example- if you can’t get your ads to serve against a particular audience then you can force a bid to a $10 CPC.

Optimizing your campaigns.

The more complex your campaigns, the more time it takes to optimize them. The more ads you’ve created, the more “weeding” your garden needs. So don’t go crazy making a ton of ads at once, just 5-10 per campaign within the 3 campaigns.

That’s why we advocate the simple 3 layer campaign strategy of audience, consideration, and conversion. These campaigns are “always on”, so they’ll continue to pass your traffic through these three levels automatically.

When you have only a handful of ads in a campaign, you can quickly see which ones to kill off and which ones to create more variations from. This is a modified version of “winner stays on”, where you keep cloning the top performer with similar audiences, but slightly different.

See our earlier discussion on creating ad combos of one or multiple interest filters. Most of our ads, by the way, have 3-4 filters on them each. Some might have 7-8 filters on them. Having multiple combinations is called “onion targeting”, as described here.

For a new set of campaigns, you should check in 2-3 times a week, spending only 15 minutes each time. Better to a few adjustments over time than try to create a ton of ads at once and have only one cycle of optimization.

You want to work with just a few ads per campaign, allowing you to nimbly pause a couple of ads (don’t hit “delete”) and create a couple of new ones.

This allows you to quickly get to statistical significance, a minimum number of clicks to be able to tell whether the difference in performance between a group of ads is a real difference or just random noise. A general rule of thumb for people who forget what they learned in stats class, get 10,000 impressions or at least 20 clicks for an ad. Any less and it’s noise, you can’t really tell.

Read more on the mechanics of Facebook ad optimization.

Once your pilot is successful.

Once you reach a point where you’ve been able to prove your campaigns are successful, then you can scale up the daily budgets. That also means you can readjust your audience sizes to reflect the larger budgets.

But more likely, once you get the hang of performing bulk operations in Power Editor, you’ll likely absorb the budget increase by just managing more ad combos.

At this point, you’ll be creating more and more audience targeting combinations to include custom audiences and FBX.

You then clone your three campaigns so you now have two of each, two audiences, two considerations, and two conversions. Except you have one “test: campaign and one “production” campaign for each type of campaign.

The test campaign now becomes what you’ve been experimenting with, while the production campaign is much larger. When you find a winner in the test campaign, you copy it over to the production campaign.

You wouldn’t test out new ads in the production budget since it could risk eating up the larger budget for a larger audience. For those who are veterans of Google AdWords, this is called the “paste and stick” method.

Superpro tips.

Just keep in mind that if the audiences are small for an ad, it would cap out on the audience well before it capped out on the daily campaign budget. Budgets are set at the campaign level, not the ad level, so you still need to be careful.

Facebook doesn’t have frequency capping or ad rotation features natively in Power Editor, the regular ads interface or the API, but we hear it’s coming. Meanwhile, that means you have to watch your frequency per ad carefully, as well as look at the frequency at the campaign and account levels.

If you’re doing a great job at onion targeting, some of your users are seeing multiple ads from you, perhaps not the same piece of content, but different newsfeed posts, dark posts, and sponsored stories.

You know that reach x frequency = impressions. Facebook shows reach and frequency, but not impressions, but you can calculate it easily. They choose to show reach and frequency instead because it’s more actionable. Your reach tells you who is exposed to your ad, while frequency is how often those folks see it.

If you have a reach of 10,000 people and an average frequency of 10, then you’ve served 100,000 impressions. A synonym for reach is unique impressions or unique users who have seen at least one impression.

You don’t want your newsfeed frequency to exceed 2 since this is a sensitive area of Facebook. You don’t want users to say “Get off my Facebook page” or other adverse ad reactions. The negative feedback would hurt you, too.

But you certainly can run frequency on the RHS (Right Hand Side) to 20 or even 30. Yes, the CTR will burn out, even lower than the average RHS CTR of about 0.070%. But if it’s still converting and you’re not getting complaints, keep those ads alive.

In general, the newsfeed placements (desktop newsfeed and mobile newsfeed) are better for audience and consideration campaigns. But for conversion campaigns, sometimes the RHS placement performs better, with better CPC, or better CPA. You just have to test. It may be that non-social businesses (think of things like hemorrhoid creme, industrial plastic extrusion machinery, or personal injury attorneys) produce content that people wouldn’t want to actually click on, even if they’re interested.

Phew, did you get it all?

There you have it! Glad you made it through all the material and exercises. Give yourself a pat on the back.

Check us out on the BlitzMetrics fan page if you have any questions.

This is the double-whammy of Facebook ads– let me break it down for you.

This is the double-whammy of Facebook ads– let me break it down for you.

To get cheap video views against your target audience, look at these two diagnostic factors.

1) base CPM– how much you’re paying per 1,000 people/impressions. No matter the objective you choose (messages, leads, engagement, conversions, views, etc), Facebook is still calculating how much they are earning per 1,000 impressions.

If you’re above a $10 CPM- you’re getting nailed. The new relevance scores will tell you this, too– selling too hard, not using vertical video, low engagement, high negative feedback, etc…

We’ve seen $30-100 CPMs at times, especially with the cost of traffic going WAY up in 2019, as we predicted. Supply is flat, while demand is increasing.

Notice here that I’ve paid $37 to reach 9,184, which is a $4 CPM. Sometimes, you’ll get $1.50 CPMs against high-quality US audiences.

2) reach to 10-second view conversion rate– the average is 10%. So of the 9,184 people, I’d get 918 of them to stay for 10 seconds if this was an “average” performance.

But, instead, I got 3,521 10-second views, which is 4 times the average. In this case, I got TWICE as many people to as normal stop scrolling for at least 3 seconds (which then counts as a video view). Then I got TWICE as many 3-second viewers to stay for 10 seconds.

By the way, I retarget only on 10-second viewers, not the default 3-second viewers, since these perform way better.

So here’s the DOUBLE-WHAMMY and what it means for you.

A lower cost of traffic and a better video conversion rate yields a 1-cent 10-second video view. Most people are paying 10 cents per person to grow their re-marketing audience.

And they’re paying $2-3 per click to get someone to their website, upon which another 50% don’t even see the page load, since they’re too slow. So call that $4-6 per actual landing page view.

Would you rather get 500 people watching you for 10 seconds, even if you’re not selling directly (educating and entertaining, instead)– or pay $5 to get just one person to the website?

The beautiful thing is that you don’t have to choose. The pros have realized that the key to ROI on Facebook is to get a few light touches at a penny or two each and then re-market that warm audience to your sales material.

You already know how to create sales (direct response) content. But do you know how to drive awareness and engagement before you attempt to convert?

Learn the WHY, HOW, and WHAT formula to drive all 3 stages of your funnel– also known as the 3×3 grid. Google it for many examples.

And then let me know how this works for you– you can thank me later!

This is the double-whammy of Facebook ads– let me break it down for you.

Driving leads via Facebook is now about strategy, not about tactical tricks anymore.

Years ago, Facebook had a LIKE button on ads– do you remember?

Back then, fan growth was all the rage– and it was before there was a newsfeed or even mobile.

We could even drive 600 fans for a dollar– not a typo since traffic was about 20 cents for every thousand impressions.

So we drove millions of fans for major brands, as well as some sales, though digital plumbing hasn’t evolved to where it is today.

Ten years ago, I thought paying $1 per thousand impressions was a lot of money. And now I think $6 per thousand is doing pretty well.

Curiously, even though the price of traffic is literally 5,000% higher than back then, the ROI is almost as good.

Why? Because the algorithm has gotten smarter (to optimize for us), the creatives are more effective (more video), and we have better strategies to measure and manage social.

Driving leads via Facebook is now about strategy, not about tactical tricks anymore.

This looks like a TERRIBLE ad performance.

$200 to reach only 3,000 people– which should typically cost $30.

And we got only 20 webinar registrations, which is a $10 CPL on a FREE webinar where we’re not selling anything.

So zero ROI there, too.

But in the last two weeks, we’ve done several deals at $20K a month– deals that came because people have seen consistent, quality sharing over the last few years.

And only now did they finally decide it was time to reach out and hire us.

Facebook ads are about WHO, but not WHEN.
Google ads are about WHEN, but you don’t know WHO.

So your strategy should be to continue to seed your target audience with what you know– not selling– then harvest the ROI via the emails you collect and incremental Google searches you drive.

Once you realize that– and know how to track it– your Facebook ads become quite profitable.

Are you planting seeds for the long-term harvest or are you going to Whole Foods expecting to eat your fruit right now?

I’ll never call myself an EXPERT at Facebook adså.

It’s not that there’s always more to learn or because I don’t think I’m competent.

Want to know the reason why?

Like Logan Young says, it’s better for others to say it, instead of you having to beat your own chest.

My friend, Ryan Deiss, suggested we call ourselves SPECIALISTS a couple of years back.

And that genius insight has been the winning formula.

Before, we called our people ANALYSTS, which implied that our people could crank on ads and analytics, but didn’t understand video, creative, client strategy, and a host of softer skills.

Our young adults could call themselves SPECIALISTS instead of EXPERTS, even if they had only a few weeks of training.

If you’re working hard on mastering one-minute videos or the one-dollar-a-day strategy, you could say that you’re a specialist doing that, not an EXPERT.

Young or older, we can all say we’re SPECIALISTS and not over-represent.

I used to suck really bad at golf (and I still do), but instead of saying I’m a pro or a beginner, I say that I’m a player.

Recently, there’s been an ego war on who is the best at Facebook ads.

Some of the folks truly are world-class and are red in the face asserting their case.

But the point is not to self-proclaim you’re the best– allow the community to say this for you.

The rest of us are lifelong students, always open to learning new things– we are SPECIALISTS like Ryan Deiss suggested.

What do you call yourself?

Is an hour of your time on Facebook worth $1.80?

If you’re an author, speaker, or coach, here’s the math on why you should LOVE or HATE Facebook advertising.

Let’s say you have a decent video that has an average watch time of 20 seconds (the average on Facebook is 6 seconds, so your skill gets people to stick around longer.

And because you know your audience, you get a high Relevance Score of 10 and a high view-through rate, so your cost per view is a penny.

That means an hour of attention is costing you $1.80.

Two days ago, I gave the opening keynote address at a conference of 1,000 people. My hour talk generated 1,000 hours of attention.

Those 1,000 hours would cost me $1,800 to generate on Facebook.

Granted, not all 1,000 people in the ballroom were paying attention nor were they in the right audience for my topic. But the same is true on Facebook.

So while I’d generally say that the 1,000 hours of attention from 1,000 people in one-hour chunks at the conference is worth more than the fractured attention of 100,000 people in 20-second chunks, there are a couple of key differences in social:

– I’ve assumed that 100% of my Facebook traffic is paid. If my post is awesome, I might get a 20-30X multiplier in organic reach/engagement. I explained how the Russian hackers could have reached 70 million people with just $100,000:….
– Your video might suck. If your average watch time is the normal 6 seconds and you have an average 3-cent cost per view, then you’re looking at about 10X the cost– so $18/hour.
– But Facebook counts views at the 3-second mark, so many of these were accidental and not long enough to make an impact, despite “research” that 3 seconds is long enough to influence people.
– At a conference, you get to meet people, and being on stage is a far higher authority than being a talking head on Facebook. We all know that deals get done in person– not because of a tweet or like.

But rather than argue “great taste, less filling”, why not enjoy the benefits of both?

If you’re a speaker, keep speaking, but choose only the best conferences. And amplify video snippets of your talk to that conference’s audience. For example, I speak at Social Media Marketing World, so I boost my posts to fans of the conference.

Yes, you need a videographer to be at the conference if they don’t provide this for you– and you need someone to edit.

If you’ve been able to advance from being a free speaker (that’s easy to get) into being a paid speaker, consider using your speaking fees to pay for boosting your posts.

That way, your conference travel is self-funding your lead gen and brand building.

But this assumes you have a funnel– a lead magnet, book, consulting package, and so forth.

I’m fortunate to know many of the professional speakers like Robert Scoble on the circuit. And we want to help them monetize attention.

The demands of travel on folks who don’t have a support team behind them means they are generating awareness and fans, but aren’t converting that attention to consulting packages and courses.

I’d estimate conservatively that if you’re selling consulting services, then the value of your audience’s time is north of $50/hour.

So if you can buy attention from the right audience, have compelling content, and have a funnel to capture it, then every time you’re on stage or post on Facebook should be moving your people through your funnel journey, putting money in your pocket.

Would you spend $1.80 to get back $50?