The Mechanics of Facebook Ad Budgeting

How much should you spend on Facebook ads? Then how should you allocate 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 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 their revenues.

• Run two ads, CPC and CPM with the same placement (newsfeed only or Right-Hand Side only, for example), and you’ll see they 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 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 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 size, 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 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 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 that you’re crossing against that initial target.

Restrict down 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. Then a couple years ago, if the audience was really small, they would say “less than 20 people”. Now 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, engagement, and conversion campaigns.

Allocate the percentages you want on audience, engagement, and conversion.

aec-1

Even if you really want conversions, you still need to put some amount in audience and engagement, so that your revenue factory has a steady stream of traffic flowing from audience to engagement to conversion.

aec-1

Even if you really wanted more conversions, you’re limited by how many friends of fans you have and the potential size of your universe (especially if you’re a local services provider). We once talked to a day care 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 disproportionately allocation on fan growth and engagement 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.

aec-2

You certainly can adjust your percentages over time between audience, engagement, 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, engagement, 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 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 engagement 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 in the bottom of the engagement 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 engagement, 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 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, engagement, 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 stay 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 the “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 ads (don’t hit “delete”) and create a couple 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 any 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.

One 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 combination to include custom audiences and FBX.

You then clone your three campaigns so you now have two of each, two audience, two engagement, and two conversion. 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 on a larger audience. For those who are veterans of Google AdWords, this is called the “paste and stick” method.

Super pro 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 frequency at the campaign and account level.

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 show 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 reaction. 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 engagement campaigns. But for conversion campaigns, sometime the RHS placement performs better, 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 like 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 at the BlitzMetrics fan page if you have any questions.

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