One of the questions I frequently get is: “How much should I spend on Facebook Ads?” There are a lot of conflicting opinions going around on this topic.
If you’re on the fence about your Facebook Ads strategy, then check out this new podcast I just recorded for you.
As always, if you have any questions and suggestions, please feel free to leave a comment below. Don’t forget to share this with someone who needs to hear it.
What's Covered in This Episode:
Three stages that you can apply to your business:
Links From This Episode:
What's up everybody, Anton Kraly here from eCommerceLifestyle.com and welcome back to the podcast. So in today's episode, I'm going to be talking about something that should help all eCommerce store owners to automate their operations, increase their revenue and become the authority in their niche. And that is Facebook ads. Now I don't talk about Facebook ads all too often, and that's primarily because we do use Google ads heavily. That's through Google shopping, YouTube, Display Network, Discovery, search, text ads. We are big on Google for eCommerce, but with that being said, we still make a lot of money and get a lot of sales through Facebook ads.
So I do think I'll start to make some different episodes and add Facebook ads into the mix. And by the way, if that's something you want to hear more about, how to use Facebook ads to grow your store, do me a favor. The best way to contact me is go to eCommerceLifestyle.com. When you click on episodes, you'll see all of our previous episodes including this one. And you can leave a comment, just letting me know you want to see more in regards to Facebook ads.
So today the specific thing I'm going to be talking about is how much money should you spend there? How much money should you spend on Facebook to advertise and promote your eCommerce business? I'll also say before we get into this, that this applies to any type of business model with eCommerce, as long as you're able to track conversions. So not if you're selling on eBay or Amazon or something where the buyer is checking out through a different cart, but specifically when they're checking out on your site or from a site that allows you to actually track what's happening and make sure that your ads are working or not working.
So stage one, what everybody should do either if you haven't used Facebook ads before, or if you're still trying to just crack it, get it to work, get it to be as profitable as possible for you. So I refer to stage one as optimizing for your maximum return on investments, your investments being ad spend. What we do here, the way we determine our budget is simply take 10% of what our total ad budget is. So the way we typically do this in our company is we set monthly budgets that we're going to spend on ads. And let's just say, hypothetically, that next month, our budget was $10,000, right? For paid ads, 10,000 bucks.
Well, what we would do then is take 9,000 of that and most likely put it into different types of Google ads that are bringing people in to our ecosystem, into our world. And then we would take 10% of that 10,000, so a thousand bucks, and we would invest that into Facebook dynamic remarketing ads. So this is very simple to do, especially if you're using Shopify, they literally allow you to add Facebook as a channel inside of the Facebook admin. And the way you can calculate this again, is if your budget for the entire month is 10,000, then 9,000 of it is going to go most likely all to Google ads. 1000 of it to Facebook dynamic remarketing ads, 1000 divided by 30. If there's 30 days in the month, what is that, like $33 a day or so, that would be the budget for Facebook ads at that specific month.
So again, stage one, when you're optimizing for maximum return on investment and maximum return on ad spend, you will be focusing on Facebook dynamic remarketing ads. Now the second stage, right? Once you have that nailed down and you're consistently getting a great return on ad spend, something that you are satisfied with, something that's profitable, then it's time to think about, okay, what can I do to still have a solid return on ad spend, but get more out of the Facebook ads platform? How can I find more opportunity there?
So here, what you can do is maintain a good return on investment while bringing in extra sales. And the way we do this is by promoting holiday offers. And I say holiday, but really any monthly promotion that we're doing, by promoting them on Facebook to our remarketing audiences. So what are remarketing audiences? They're people that have already engaged with our business. These can be website visitors. These can be people that have engaged with our Facebook pages or our Instagram accounts. And what Facebook allows you to do inside of audience manager is build audiences of these people. So if 10,000 people visited your website last month, you can have an audience of 10,000 website visitors in the past 30 days, if 5,000 people engaged with your Facebook page, you can have an audience of 5,000 people that engaged with your Facebook page in the last 30 days.
So when we're going to promote something for the holiday or again, any monthly offer, the best thing we can do is promote it to those people, not to quote unquote cold audiences or people that have never engaged with us before on Facebook. But the people that have already shown an interest in what it is we do and what it is we have for sale. So for these monthly promotions and your Facebook ad budgets, where should you come up with a number, right? What should that number be that you tell Facebook, okay, spend this for Black Friday or Cyber Monday or whatever it is. The calculation we have here ...
By the way, I'll put this in the podcast description too, because I know some of you might be listening as you're driving somewhere or out for a run or at the gym. And it's a lot of steps so I'll just put it in the description so you can take a screenshot or something and implement it later. But the equation that we use is we take our audience size, so our remarketing audience size, and we divide that by a thousand.
So let's just say the audience size of people that have visited our website in a given amount of time engaged with our Facebook page and our Instagram accounts, let's say that audience size equals 100,000 people. We would take that and divide it by a thousand. So in that scenario, 100,000 divided by a thousand would give us a number of 100. Now what we do next is take that number and we multiply it by our average CPM. And I apologize if this is like getting above anybody's head, if it is just go to dropshipwebinar.com after this podcast, I'll link that in the description too, dropshipwebinar.com, you can get a free training there, going through exactly how we build highly profitable semi-automated stores. And this will all build on that, but do that first, dropshipwebinar.com. But what we're doing here, that's CPM. What that is, is our cost to reach 1000 people, our cost for our ads to show to 1000 people. And on Facebook, if you've already been running ads, which you should have been by the time you get to stage two here, you'll see your historic CPM. So let's just say again, we'll use easy numbers, that historically our CPM cost to reach 1000 people was $5. Now we're going to multiply that $5 by that 100 that we got from our first calculation. And what that's going to do is give us 500. Now, the next thing we want to determine is how many times during this monthly promotion do we want the same person on Facebook to see our promotional ad?
So let's just say it's a three-day sale. And we say, we want everybody in our audiences to see our ad four times. So four times each, what we would do then is take that 500 and we would multiply it by four, by the four times we want everybody to see it. What that would do is give us $2,000, a $2,000 budget for our monthly promotion. Remember, what does that mean? That means if we had 100,000 people in our remarketing audiences and we wanted them all to see our ads four times, it would cost us $2,000 for that promotion, again assuming our historical CPM was $5. And again, I know this might be like, what do all these numbers even mean, and this is a lot. Just look in the podcast description and it'll be all there laid out for you to make this simple, take a screenshot of that and use it to do your own math later for your next promotion.
But that is the second way we budget for Facebook. So stage one, simply 10% of our total monthly advertising budget gets put into Facebook dynamic product ads that are remarketing to our website visitors. Stage two is we promote monthly offers on Facebook to those people that have visited us in a given amount of time, depending on how much traffic you get, maybe you want your monthly promotions to show to people that visited in the past 30 days or 60 days or 90 days or 180 days. You can try that on your own, see what works best for you and for your store. But once you're doing that right stage one is in effect stage two, you're doing it every month. You're maintaining return on ad spend. You're making more money and you're thinking, what can I do to get more out of Facebook? What can I do to get to that next level of scale?
And what I would recommend you do there is start to look at what might get you a lower return on ad spend and a lower return on your advertising dollars, but give you the possibility of making a lot more sales. Now, possibility is the key word there. And that's because this is something that is in no way guaranteed to work, and stage three is something that requires you to seriously invest a sizable amount of money, to know how it's going to pay off, really, if it's going to pay off at all. And if it does, what does the return on investment in ads even look like here in stage three? But what you would do here and what we do here is create a free resource that would be beneficial and would be a value to our target audience, to our customers, right? To people that would buy from us.
And what we do here on Facebook is create campaigns that are lead campaigns. And we create what are known as lead ads. Now with a lead ad, we are not trying to get anybody to buy anything. We're simply saying, hey, here's a free report. Here's a free ebook, whatever it is. And when they click on it on Facebook, they will automatically enter their name and email because it's a Facebook lead ad that will get sent into our Klayviyo account, so we can follow up with them with email remarketing and they'll get an email giving them whatever it is they asked for. Now what we do after they get that thing they asked for, is we have followup sequences that are then introducing them more to our brands, making offers and trying to get that sale.
And that's why you don't just know if this is going to pay off from day one. It's literally a process of having people come in, go through everything that happens after they opt in and see what that lead value becomes worth to you in terms of customer value. So how should you budget for stage three, whether you're there now, or you get there a year from now? Well, what I would recommend for you is figure out what it would cost to get 1000 leads, because in my opinion, to get a good sample size, to see if it's working or not, you want a thousand people to get your free thing and to go through your sequence that's delivering them value ... your email sequence, I should say, that's delivering them value and making offers. So let's just say you set this up and you find out that your average cost per lead, that's again, per opt-in per name and email, is $3.
Okay. Well, I just told you, I would say, get at least a thousand people through that. So 1000 times three is 3000. So 3000 would be your starting budget if your cost per lead was $3 in stage three. And then what you're going to do is have those 1000 people request the thing, become leads and go through that whole sequence. And then what you're going to look at is what did that 1000 leads become worth? How many of them bought, what was their average order value? What was the profit on the orders that they placed with you? And from there you can determine was that return on investment worth it, is it something I'm comfortable spending more money in, is it something I'm comfortable scaling? Is that something that maybe is break even, but now I want to tweak my email followups to try to close more sales, or is it something that was a total loss and you just want to kill it and restart with something new.
Those are the decisions you would make, but as far as budgeting for stage three, again, it depends what 1000 leads would cost you. But like I mentioned, in the beginning of this podcast, guys, don't do stage three until stage two is working and making you a ton of money. Don't do stage two until stage one is already crushing it for you, and just basically running in the background, bringing in additional sales day in and day out. So that's it. I know for a podcast, this was kind of technical. So hopefully you still got value. If you did do me a favor, leave the podcast a review. I will post the link in the podcast description. You can also just go to your phone, to your favorite podcast app search for eCommerce Lifestyle and just leave a review through that. Again, I really do appreciate that.
And to try to simplify this equation, at least for stage two, which is probably the most difficult to understand without sharing my screen and whatnot, look for that in the podcast description so you can set this up for your own business. So thank you everybody. I appreciate you. If you're new go to dropshipwebinar.com for a free training from me. If you're a little bit more advanced and you want to know exactly how we create those holiday promotions and monthly offers I was talking about, you'll definitely want to check out a program I have called Get Money Now. That is available at eCommerceLifestyle.com/courses. And I will link that up in the podcast description as well. So thanks again, everybody appreciate you. And I will talk to you on Monday for the next episode of the podcast. See ya.