How Much Should You Actually Spend on Facebook Ads?

person spending money

One of the trickiest aspects of paid social advertising to master is how much you need to spend on Facebook ads. A lot of clients will come to us with grand plans of tripling their budget because they’ve seen great performance, and similarly there’ll be clients who want to spend as little as possible and still achieve results. As paid social experts, it’s our job to know where those spend levels need to be to hit targets, whilst also being realistic. That being said, how much you should be spending on Facebook ads really is completely dependent on too many factors for me to give you a blanket answer. 

Before we dive into what you need to look at to evaluate what your budget should be, let’s discuss what happens when you don’t get your spend level right. 

What happens if you are underspending?

Both underspending and overspending are the death of Facebook ad accounts (I know that sounds dramatic but it is true). Of both of these extremes, underspending is probably going to cause the most problems.

If you aren’t spending enough budget in your account, a few things will happen. 

Firstly, your account won’t reach enough people, or the right people, meaning that you really won’t collect enough data. By not having enough data coming through the account, your account will likely be stilted in ‘learning limited’ and you won’t be able to make data-driven decisions on your strategy moving forward. 

Secondly, it’s unlikely that you’ll be hitting your target. Everyone wants to get results for as little money as possible but as the age-old saying goes “you need to spend money to make money”. By not giving the account enough budget to play around with, your account won’t have done enough testing to see what works best and you won’t get the results that you want. 

Thirdly, your competitors are probably outbidding you and taking all your conversions. We’ll delve into the impact that competitors and your industry market have on your account later on. 

In a nutshell, spending too little means that your account isn’t growing enough and won’t build enough data

What happens if you are overspending? 

So if spending too little has a negative impact on my account’s performance, I should just spend loads of money on it, right? Wrong. 

Overspending can have an adverse effect, as you are putting too much money (and therefore people, data, interactions etc.) in the account and losing sight of your audience and allowing the account to optimise for those. 

When you put a large amount of budget through your ad account all of a sudden, your account basically starts to panic. Ad accounts like to build up learnings, get used to their audience, the creative, and how users react, by adding a lot of budget initially, you’d think that you’d just speed up this learning process. But that’s not how it works. 

A few things will happen to your account if you overspend.

You will reach lots and lots of people (depending on your targeting). You might think that reaching lots of people is exactly what you want, however, as Facebook is trying to spend all the budget that it’s assigned, rather than just going after those people that are likely to convert and engage, it just has to go after anyone within your target demographic. Basically, your account will ignore the low-hanging fruit and go straight after the whole tree. What does this mean? Increased costs and fewer results.

You’ll also be reaching the same people over and over again. If you build out huge broad targeting audiences, let’s say there are a million people in there. That could never get exhausted, surely? It definitely can. If you’re spending £50,000 a month on that audience, based on a CPM average of £10, you’re going to be hitting those million people 5 times each month. Now, consider that on a smaller scale. If you’re putting £10,000 a month into your abandoned basket campaign, which only has 1,200 people in it, you’ll be hitting each of those users over 800 times per month. It is extremely unlikely that those people will still be engaged with your ad and not just want to never see your branding again. 

To summarise – fewer results, increased costs, and an audience that’s fed up with you.

Now that we know the dangers of getting your budgets wrong, let’s take a look at how we work out what we need to be spending.

Know what your goals are

The first step to developing a budget is to fully understand what you want to achieve from that budget. We need to work out exactly what the goals are to create the best strategy to achieve those.

Ask yourself these questions:

  • What does success look like from my campaigns?
  • Am I aiming for quick wins or long-term success?
  • Are there any targets in place that I need to hit? 

Following these, you should then ask yourself the following questions:

  • Is what I’m trying to achieve actually achievable on Facebook?
  • Am I being realistic with these goals?
  • Do I have enough understanding of the platform to make this decision? 

If you have never run ads before, but you aim to get leads at a £10 CPL, then you will likely need to answer no to every one of those secondary questions.  

Paid social media is an incredible tool for building brand awareness, driving middle and bottom of funnel traffic, testing creativity, and educating your audience, but what it isn’t is a lever that you can just pull to hit unrealistic targets. It is absolutely fundamental that you understand this before even discussing budgets.

Not all goals are created equal

Now, let’s circle back to budgets. Once you have set targets and goals for your campaigns, we can start to look at how much these will cost. In terms of actions, they all tend to sit on a scale such as the below*:

Least Expensive Action

Reach

Video views

Engagement

Traffic

On-Facebook lead generation

Purchases

Landing page leads

Most Expensive Action

*this is a very basic scale, and yes there are lots of factors that may impact this, but this is just a top-level view for the purpose of the blog

So, if your objective is to achieve landing page leads, you’re looking at the costlier end of the scale. However, if success just looks like reaching a large audience and building engagements, you are looking at lower costs. 

From here, you can be more realistic with where your budgets sit. The more expensive actions that you want to drive, the more budget that you need to spend. A good paid social manager will tell you that you need to incorporate a mixture of high and low-cost actions into your strategy to really drive results, so factor that in too. 

Number crunching is important

It’s also important to consider external factors when looking at your paid social strategy, rather than just the platform itself. 

Example 1: If your goal is to achieve a 10 ROAS selling your products on Facebook, we need to look at your average order value. If your AOV is £20, that means that in order to achieve a 10 ROAS you need to be selling those products for no more than £2 on Facebook. 

Now, unless you have an insanely high converting website and an extremely engaged audience that you can tap straight into, I’m willing to go out on a limb and say that it is unachievable. But, that might not be the case. We’ll dive into that in the next part.

Example 2: If your goal is to achieve 15 converted leads per month from £5,000 spend, we need to reverse engineer that. What are your sales conversion rates? What is your landing page conversion rate? 

If we know that the sales team convert 10% of all leads that come through and your landing page converts 50% of the website traffic that comes through, with a bit of maths we can work out that we then need a £16.67 cost per lead to hit the target. 

This changes significantly if we keep the same target, 15 conversions, and reduce the budget down to £3,000. Rather than a £16.67 cost per lead, we’re now aiming for a £10 cost per lead. See how important your budget is?!

Once we have our targets, rather than just your top-level converted lead target, we move on to the next step of our budget journey – analysing performance. 

Analyse your performance

So, you have set goals and targets that seem achievable but you’re not 100% sure. Where do we go from there? The next step is to take a look at a previous performance. 

(For the sake of this section, we’ll assume that you’ve been running ads before or are currently running ads.)

There are multiple ways to get to the point where you’re reevaluating your budget. Two of the most likely are that performance has been really good lately and you want to scale, or that your ads haven’t been hitting the mark and you need to reconsider what you’re spending. 

Using past performance as a benchmark

We’ll take the first point we mentioned, success-driven budget change, and mix that with example 2 from above, the 15 converted leads target for this next example.

We’ve worked out that we either need a CPL of £16.67 from £5,000 or £10 from £3,000 spend to hit our conversion targets. In order to understand if that’s achievable, we now need to take a look at our previous campaign results. The previous campaigns look like this: 

Last month

Spent: £2,000

Leads: 57 

CPL: £35.08

Month before

Spent: £2,000

Leads: 63 

CPL: £31.74

Now that we can see the previous few months’ data, it is pretty clear that both of our CPL targets are far too low. The account has been consistently hitting around a £30 CPL with a £2,000 budget, so more than doubling that budget isn’t going to magically decrease that by half. Similarly, increasing the budget by £1,000 and expecting the costs to decrease by £20 per lead is unachievable. 

Without looking at this data, on paper, your CPL isn’t that high and your budget is manageable, but when you look at the account, the budget is too low to jump significantly overnight and the targets are unrealistic. 

The next steps here should be:

  • Slowly increase spending by £500 – £1,000 per month with the goal of keeping the CPL flat
  • Once you’ve reached £5,000 spend with a flat CPL of £35, and work on reducing the CPL by testing the new ad creative, copy, targeting methods etc.

Not all metrics are scalable 

Looking at your past performance is great, but you need to know what metrics are scalable (by scalable here, I mean that they will just keep increasing/decreasing positively as you grow) and which aren’t before you decide ‘yes, this is achievable’. This is why your paid social manager is really important, as they have lots of experience with this, but as a general rule of thumb, you can use the following:

  • Reach – yes, this is scalable, but you will get to a point where you have exhausted everyone if you spend enough
  • Clicks & cost per click – scalable to an extent, but you will start paying more for your clicks as you reach further audiences that have less intent
  • ROAS – it is scalable but is not a never-ending ladder. As you reach audiences with less intent, you will end up paying more for each click and therefore each purchase, meaning your ROAS decreases
  • Cost per lead – as you start paying more for each click, each lead becomes more expensive 
  • Engagements – yes, this is scalable and your cost per engagement will stay roughly the same

Understanding how your account behaves with more spending is essential to budget discussions. Without this, you’re just putting your finger in the air and making assumptions. 

Understand the market 

The Facebook advertising marketplace is an auction. Whoever has the most money and the highest quality ads wins. In this instance, a ‘win’ is getting served to the target audience. 

You need to compete

Every industry is very different and places varying levels of emphasis on paid social advertising as a revenue stream. Fashion, beauty, and homeware, for example, tend to rely quite heavily on paid ads and therefore spend a lot of money on not just advertising budget, but also the creativity that goes into them. They will have photoshoots and utilise expert graphic designers, videographers, and influencers to craft the perfect creative. In the auction, as I said, there are two key factors: creativity and money. If you aren’t competitive in either of those areas, you’ll likely miss your audience and see increased costs. 

If you know that your audience is highly sought after and your competitors are likely spending a lot of money on advertising, you need to up your budgets. If your audience is quite a niche, you can probably get away with spending a little less. 

Location, location, location

It’s really common for clients to have big plans to launch international campaigns. But, it’s also important to consider audience sizes to understand what budget is necessary. It can be easy to forget how small the UK is in the grand scheme of things. 

Facebook states that there are around 50 million people 18+ on the platform in the UK. If we then take a look at those stats for the US, it jumps massively up to 250 million people. You cannot use the logic here that you spent £50,000pm in the UK and that worked well, so let’s do the same in the US, as it is just so much bigger. 

If you can’t increase your budget significantly, then your budget needs to be strategically allocated to locations where you’re more likely to achieve results. This could be specific states or cities. Without this, you won’t have enough money to be competitive. 

Listen to the experts 

We’ve covered quite a lot of information here that needs to be considered when looking at budgets. That is because the topic is extremely complex and involves a lot of variables and factors. 

My main advice to all brands is to listen to the paid social experts, your paid social account manager, and whoever is experienced in the field, when they tell you what your budget should be. If they’re asking you to spend a huge amount of money, it is unlikely that it is because they just want to waste your money. Most often, it’s because they have experience and can identify the opportunities for you to grow your revenue with an extra budget. Similarly, if they tell you that you cannot increase spending and you need to let the account settle, it is probably the best thing for the account. 

Everything said and done above, there are definitely some minimums when it comes to Facebook ad spend that we’d recommend. Without these, it is very difficult to achieve results and you’ll be wasting your money. We usually recommend at least £5,000pm ad spend for an ecommerce brand and £3,000pm for a lead generation account. (Again, these are a rough guide and there are definite factors that would change these, such as everything mentioned above.) 

When you join Embryo as a paid social client, we will guide you through the above analysis based on our years of experience in the field and let you know where your spending needs to be to really hit your targets. If you want to find out more about social media advertising or our services, please get in touch