These are some of the most common questions that I read from Business Owners and Ad Managers. The purpose of this post is to spur up some ideas on what you should consider when trying to set budgets for your campaigns/ad sets. This post comes from experience of me spending $3.5M of my own money on Facebook Ads for my business as well as now managing ads for many clients. Truthfully, there is not a one size fits all answer to this question. It highly depends on the many factors like:
Your current situation
Are you just starting out or are you scaling? If you are just starting out and haven’t established a cost per purchase, it’s almost like being out at sea without visibility of land. You need to test a bit and get a few sales under your belt before you can be confident in setting your budgets. At first you are truthfully flying a little blind but once you get data, the picture and strategies available to you become more and more clear.
Your business’s current financial situation and budget
Only set a daily budget that you are comfortable with. Spending more on Facebook does not necessarily mean you will get better results. On the flip side, if you make your budget too low then you could not be giving Facebook enough data to work with. Facebook ads optimize off of conversion data so it needs enough budget to be able to get conversions to then optimize.
Your profit margins
Do you have excellent profit margins where you can pay more to acquire a customer? Awesome! You have a good chance of succeeding with Facebook Ads. Digital products are a great example of this because they generally have a breakeven of 1x or close to 1x.
If you have thin profit margins, it can be very difficult to succeed on Facebook due to how expensive it’s become to advertise on the platform.
Your business model
Is your business a subscription-based model or is your product highly re-purchasable? Then perhaps you would be willing to take a loss on acquiring a new customer because you know you can recoup the revenue over time. For regular e-commerce stores that haven’t established a cost per purchase, I generally try to break even at the bare minimum when starting out.
The price of your product or service
Is your product’s price $50? $250? $1000? $10,000? This will massively dictate your daily budget. If you are selling a $50 item, and have a $50/day budget, then in theory you should expect that you get at least 1 sale per day with 1 campaign, 1 ad set and 1 ad. If you aren’t achieving this, then obviously you are operating at a loss and you need to change something. In this scenario, you would need to establish a cost per purchase of less than $50 to be profitable. How much less? It depends on your costs of goods and shipping.
Setting a $50/day budget for a $10,000 product can be problematic because it could cost you $1,000 to acquire a customer. Although that would be extremely profitable for you, it would take you approximately 20 days to get a sale. That means 19 days with no sales. How would you know if its working? How long can you sustain that? Also since we know FB optimizes off of conversion data, you aren’t giving Facebook enough to work with in order to get a conversion to then optimize.
Your average order value (AOV)
Is your AOV $200 or $1,500? This can make a huge difference in how much you are willing to spend to acquire a new customer.
Your lifetime value of a customer (LTV)
This concept is easier to understand with subscription/membership models. If your customer LTV is $2,000 then you might be willing to spend $800 to acquire a new customer. So a $100-$200/day budget, for example may make sense.
How many products or collections of products do you plan to advertise
The more products/creatives you want to test the more you are theoretically splitting up your budget. If you split up your budget too many different ways, especially at lower budgets, it can really have a negative impact on your performance. In my opinion, it is better to have 1 ad with $50/day than 5 with $10/day each.
What your average cost per purchase is (if it’s already established)
If you have already established a cost per purchase of say $50, then I would hypothetically do a budget of at least that amount or more per ad set. That way you can reasonably expect to get 1-2 sales per day per ad set.
A useful rule of thumb that I use is to ask yourself if you are “asking too much of Facebook” when setting up your daily budget. Am I splitting up the budget too many ways? An example of this is having a product that costs $1,000 and have 1 CBO campaign with 5 ad sets and 10 ads inside each with a daily campaign budget of $50. Imagine how many ways your budget is being split up. You are asking too much of Facebook to generate you a sale.
How many campaigns should I have?
That entirely depends on your daily budget. If you have a smaller budget like $50/day then it makes sense to have 1-2 campaign MAX. As mentioned before you don’t want to split up the budget too many ways because you are not giving Facebook a chance to generate conversion data to then optimize. At smaller spends, Facebook performs better when the budget is concentrated in 1 or 2 places instead of spread very thin.
If you have a larger budget, like $10,000/day then it makes total sense in my opinion to diversify your approach, strategies and have several campaigns to work with. Much like investing in stocks, you want to spread your risk out by having a variety of campaigns with different strategies. When facebook has bad days, not all of your campaigns will be affected the same. Also you have optionality and can lower budgets on certain campaigns that are doing poorly. If you only have 1 or 2 campaigns your only option is to lower your budget or close the campaign which can have large impacts to your overall advertising efforts.
How many ad sets should I have?
First, what is the purpose of having multiple ad sets? Its to test different audience and placement settings against each other.
This highly depends on your daily budget as well as whether you are testing or scaling. If you have a decent budget and are testing, then it could make sense to have 1 campaign with several ad sets all with the same creative underneath. Then you can have each ad set compete against each other in a CBO to see which audience performs best.
If you have a smaller budget, then I would do 1-3 ad sets max to test different audiences.
If you have found an audience that consistently produces good results in terms of volume of sales and ROAS, then its time to scale. You could use the Crazy Method to make 1 campaign with several copies of the same ad set. (See my other posts) The number of ad sets depends entirely on your cost per purchase. Remember your rule of thumb is to try to get 1-2 sales per day per ad set at a minimum.
How many ads/creatives should I have?
I generally try to stick to 3-5 per campaign because it’s easier to manage and it doesn’t spread your budget out too thin when you are playing with smaller budgets. If you have more creatives to test, I typically use the dynamic creative function and put up to 10 in there. If you have a large budget then it does make sense to test many creatives to find some winners. Ultimately your goal is to funnel all of your daily budget towards proven/winning creatives and not towards others. So if you start with many creatives, identify a few clear winners and then consolidate your ads by only including winners in subsequent campaigns.
Hopefully this helps out some of the newer advertisers who are not sure what to consider when picking a daily budget. Although this post doesn’t cover everything that goes into it, I believe it touches on some of the more important aspects. If you have something to add, please feel free. Until next time! Good luck out there.
