What Should Your Starting Facebook Ad Budget Be?

0:00hi guys it's been Heath from Italy guru and in this video I'm gonna talk about what your starting Facebook ad budget should be what's a good starting Facebook ad budget it's a question I get all the time I'm gonna show you exactly how to calculate it what you should be thinking about when it comes to budget all that sort of stuff now before I get into that quickly mentioned at the end of this video and we're talking about something to do with Facebook advertising strategy a free resource that I think you're gonna be really interested in so make sure you stick around to the end of the video for that

0:28but with that said let's get into it so you can probably see that I have a blank Excel document up in front of me and I'm gonna use that to make a few calculations for those of you that aren't very mathematical don't worry it's not gonna be complicated but I think it'll help you understand how I think about budgets now I speak to tons of people out Facebook advertising all the time and I would often ask them what is their budget how much money have you got to work with and they will come back to me and say well what should you spend on on a Facebook ad campaign and they

0:55say that almost expecting there to be a right answer as in everyone who advertises on Facebook should spend this much well I can guarantee that when Toyota run a Facebook ad campaign they're gonna spend a lot more than you know someone who just started a business and it's operating that out of their spare room for example okay so what your budget is really depends on your business your products or services your acceptable cost of customer acquisition what your objectives are I'm going to show you how to sort of basically work that out going through okay I'm also going to make some recommendations in terms of a minimum starting point I

1:31think that's something people are interested in as well so you may not have thought about a lot of these numbers but as we go through this is important that you do so because it's important to help work work things out the first thing you need to work out is what you can afford to pay to acquire a customer okay so let's say for example in fact let's go ahead and write this in there because I think they'll be useful for you so let's say my average customer value so this is how much a customer pays me on average okay let's go with 2000 hundred dollars let's just see more

2:14these are all these numbers of dollars okay I'm obsessive values - and a thousand dollars it will depend on what they're buying are they buying a product are they buying a service if they're buying a service what does it cost you to deliver that service they're buying a product was your cost of goods accepted cetera but then think about what are you really willing to pay to acquire a customer now some people say things like I'm willing to pay 10% so let's say let's call this acceptable customer acquisition cost okay that's just drag that out can't find the little rap thing that might so let's say you're

2:56acceptable customer acquisition self they'll say it's 10% so I'm willing to pay $250 to a car customer to which I usually particularly for service based business I usually go back to my say really you really only willing to pay $250 to acquire a customer that's worth two and half thousand dollars let's say for example I had a magic machine where you put 500 dollars in and you got out two hundred two-and-a-half thousand dollar customers from it would you keep putting money in that machine and most people say oh yes actually I can't afford to pay more to Christ when you go yes exactly I thought say so often businesses that I

3:28speak to if their service base they might be willing to pay up to let's say thirty percent of the value of the customer if their product base sometimes it's a lot less because of course they have cost of goods acceptor acceptable but let's assume for argument's sake this company is willing to pay five hundred dollars to acquire a new customer that's worth two an worth two and a thousand dollars that gives them enough revenue in order to pay you know their staff who are going to be implementing the service it leaves them with some profit on top except obsession okay so that's your acceptable customer acquisition cost now if these numbers

3:57seem massive that's absolutely fine you can have an e-commerce example where let's say your average customer value is 40 bucks and let's say you operate with a 50% margin and you want to double your money on your facebook ad campaigns so the product cost you $20 to ship in from China or whether wherever you sell it for 40 so therefore you want to acquire new customers for $10 each those could be your numbers we've run campaigns with those sort of numbers where the target cost of customer acquired is $10 okay so don't worry if this example looks crazy and this sort of e-commerce option could absolutely work but I just

4:32leave that up there let's do service and let's do ecommerce so it's nice and clear and obvious as assuming these are our numbers now if that's your $500 is your acceptable customer acquisition cost that's what you're willing to pay to acquire a customer you then need to calculate how much you're willing to pay for a lead and to know that you need to know your conversion rate so let's say for example you convert at 20 percent okay so let's say your lead to customer conversion rate is 20 percent so you need five leads to get a customer that means that you're willing to pay per lead so

5:21acceptable cost per lead equals 100 bucks and lets you know what I wasn't going to but let's pop in the dollars because I think it will make it easier for you guys to follow as we go through and add numbers in no keep it all in dollars that means you're acceptable cost per lead after dollars now you should take note here that I'm writing acceptable that is the maximum you're willing to pay it's not your target of course you may want to generate leads for you know twenty dollars ten dollars two dollars we all want that to be as low as possible but it's important to

6:04know what your acceptable is because if you know what this is if you think I you know I only want to pay twenty dollars per lead and leads cost you $60 for Facebook you may think I've got a stop right at the campaign when in fact actually if you run through these numbers you might work out the acceptable cost per lead is $100 and you can actually afford to pay a lot more than you thought you can afford to spend more on Facebook advertising grow your business etcetera you need to understand these numbers so the way you calculate this super simple by the way is just

6:31your acceptable customer acquisition cost times the percentage gives you 100 make sense if that was $100 then this would be $20 okay because there's one-fifth of that if that number there is $300 then this one's going to be $60 okay so that's a really important thing to work out your acceptable cost per lead now you need to work out obviously these don't apply for the e-commerce option here I'll just write not applicable in there now you need to work out how many customers you want a campaign to generate a month to be worth running as a really important point in the end to be worth what this video that recording

7:16right now is all about calculating what you're starting Facebook ad budget should be what you should start spending when you first run the Facebook ad campaign not what you want to scale to of course I can say how many customers do you want you say I want a million customers I want a thousand customers know what is it how many customers does this need to generate for to be worth it now for some businesses that let's say a customer is worth two and a half thousand dollars perhaps for a Facebook ad campaign to be worth the effort worth the time and you need to generate one

7:42customer a month okay so if their minimum target customers is one I don't want dollars I knew I was gonna do that give me a number is one they want one new customer month that's the minimum therefore they're starting budget should be what's ever required in ad spend in order to generate one customer so starting budget of $500 in fact I'll pop those currency sorry this is a bit confusing but biti right okay let's format this up a little bit keep it all nice and easy now we know that our Roth one customer in this scenario we know that we're willing to pay up to $100 per

8:41lead we need generate five leads generate customer therefore our starting budget should be $500 now if things go to plan you'll cross paths maybe $50 your conversion rate might be better might be worse the numbers won't exactly come out like this you may get two customers for that $500 for example okay but I would say always set that number at the minimum that needs to be worth it because part of this is a psychological point if you're ready the Facebook ad campaign on such a small budget that even if it works is and do anything of your business there's just no point you're not gonna be invested

9:12you're not going to take the time to create really good ads you're not gonna do the targeting research the things that are required to get great results if you've got a bigger business and let's say that needs to be five if you know our we need five new customers a month to eve and make it worth it there's just we generate 50 new customers a month we're not going to generate another five through another marketing platform like Facebook Instagram appetizing I'm not even bothered well then your number comes out at five times that two and half thousand dollars is what you need to spend to acquire five customers might still be

9:39very profitable you spent two enough thousand dollars you generate five times two or nine thousand dollars which is 12,500 u5x per a rest your money good news happy days let's take a look at the e-commerce example let's say you're you know you're running you started a new e-commerce business you're running Facebook ad campaigns and you're going look we're willing to pay $10 per purchase $10 to acquire a new customer our average customers are worth $40 to us how many new customers do we need to make Facebook advertising worth it to even bother let's say you've got an absolute minimum of 20 you need 20 customers to even make Facebook

10:18advertising worth it okay to even bother now my mean last if you're just getting started maybe 10 maybe idea of an extra four hundred bucks a month is exciting completely up to you but let's just say it's 20 therefore if you're if you need 20 new customers and you're gonna be paying 10 you're willing to pay up to $10 per new customer then you're starting and budget should be dollars $200 okay very very simple calculation very easy to make hopefully that makes sense you need to know how much customers are worth on an average basis if you're just getting started you don't know information just just guess use your

10:58best guess then you need to work work out how much you to pay to acquire a new customer again that might not be tricky but really have a good think about that so in this example let's say I'm selling the product for 40 dollars it costs me $20 per you need to get it manufactured I'm willing to spend 50% of that margin in order to as a maximum in order generate a sale so I'd be making $10 profit per sale I want to make $200 I want to make 20 sales in a month to make it worth it that would give me $800 in revenue $200

11:31in net profit fine let's go ahead and do that okay and that's how you come out with these starting budgets it depends on this number and obviously the numbers previously now obviously as you scale these numbers might change and bigger businesses these numbers are going to change so we have companies that we run Facebook ad campaigns for they're spending more than a hundred thousand dollars a month you know for a campaign to be worth it they're they're making calculations on look we need to acquire 2,000 new customers this month or whatever happens to be others when you're just getting started you might just want to start with $200 in a month

12:05and that's absolutely fine one thing I will say about a minimum budget to get started with is they wouldn't recommend spending anything less than $100 a month I just don't feel there are basically any scenarios in which a hundred dollars a month is or less it's going to generate enough leads and our sales for it to be worth the time to make Facebook advertising work you need to create highly engaging creative you need to use do the targeting research you need to set up all the stuff it's just okay even with $100 if you 6x your money 10x your money make a thousand bucks a month

12:40revenue is the profit on that really gonna be worth it maybe it will be for your scenario but maybe not so that's why I would say start don't start with anything less than $100 a month I think if you don't have that to spend you're better off and operating with you know using some other digital marketing platforms try a youtube channel SEO things that you can invest time into and not necessarily money as opposed to running on a Facebook ad campaign that's gonna require immediate upfront money in order to get it going started the other thing I'll say on when it comes to Facebook advertising budgets

13:20from what you should start spending is make sure it's something that you can afford I would recommend to people is a plan is if the first two to three months of Facebook ad spend are going to be lost now if you do things properly if you use the videos that you know I've been I've created create your Facebook ad campaigns you go through my you know trainings and things like that then it's highly unlikely we never launch campaign where the first few months of money is lost but it's it's not impossible that that first few months won't be profitable for you you may be lost making during this first few

13:54month and you need to be prepared for that you may it may be because you just haven't got your ads quite right and greet your targeting quite right you haven't worked out your sales funnel yet you may need to run a campaign go hmm okay I need to adjust this now so don't use your rent money as basically what I'm saying when you run that campaign in the early stages run a campaign make sure it's money that you can afford to lose it's very likely you won't see any return but it might not be profitable initially and make sure you can keep going if you've got three

14:20thousand dollars to spend on Facebook ads don't start month one with three thousand dollars start with perhaps five hundred dollars a month that'll give you six months worth to working out and be able to optimize your sales funnel so you could start generating revenue that you can then invest back into your Facebook advertising okay hoping that makes sense hopefully that video has been useful if it has pop a comment below to let me know obviously of any questions pop them in the comments at the beginning of this video I've talked about something and to do with Facebook advertising strategy that I think you're gonna find really useful I'm gonna

14:48quickly tell you about it now so I've created a webinar free webinar a link will be in the video description below that is called three killer Facebook advertising strategies to double or more your revenue and that's what the webinars all about it's all about Facebook advertising strategy it's all about sales funnels and which sounds funnels you should use depending on what type of business you have it's incredibly important if you're not getting fantastic results from your Facebook Ads there's a really really good chance it's because you're not using the right strategy strategy is the most important thing using the wrong strategy your campaigns will fail so I would strongly

15:19strongly recommend that if you're watching this video if you're interested Facebook advertising that you check out that webinar seventy minutes long and uh there'll be a link as I said in the video scription completely free go ahead and click on that register watch it go through it probably be the best thing one most important things you've consumed I know that might sound ridiculous but but it really isn't that's not hyperbole we've had thousands of people watch it already and the feedback so far has been fantastic so strongly recommend you go through that another thing I look at you mentioned is my free Facebook Ads mastermind group I've got a private

15:51Facebook group that's got 26,000 members all Facebook advertisers all wanting to get better results with Facebook Ads answering questions and helping each other out fantastic community so if you've got facebook add questions for your thinking what do I do here what do I do there go ahead and join my facebook group link is in the video description click through ask to join and I'll approve the request but we do love to have you in there as I said fantastic community all sorts of people willing to answer questions like myself other Facebook advertising experts I think you'll find it really really valuable okay if you enjoyed this video please give it a like

16:21thumbs up subscribe to my channel turn on the little notifications so you get notified every time I release a new Facebook advertising related video and I will talk to you guys soon thanks a lot bye