In 2016, over 90% of marketers embraced Facebook advertising, making meticulous budget planning and strategic marketing crucial for a successful 2017. However, many marketers may find their Facebook budgets lacking a structured strategy.
While a budget might exist, the absence of a clear plan can lead to inefficient spending on underperforming campaigns or inadequate investment in successful ones.
Fortunately, establishing a well-thought-out Facebook budget is not overly complex. To simplify the process, let’s address four key questions that will assist you in crafting and justifying your Facebook budget for the upcoming year.
1. How Much Do You Need to Make?
To determine your Facebook budget effectively, start by clarifying your advertising goals on the platform. The goals may vary, ranging from driving clicks, conversions, or leads to achieving sales, revenue, or a specific return-on-ad-spend (ROAS).
While clicks and conversions are valuable metrics, the ultimate objective of Facebook advertising should be to attain a positive return on investment (ROI).
If your Facebook spend isn’t generating profitable revenue for your business, the advertising strategy needs reevaluation. Since revenue primarily stems from sales, it becomes crucial to prioritize the revenue goal over clicks or conversions.
Therefore, before deciding on your Facebook budget, establish the revenue target you aim to achieve through Facebook advertising. This information will guide you in determining the appropriate ad spend needed to reach your revenue goal.
2. Who Are You Marketing To?
Once you’ve established the revenue goal for your Facebook advertising, the next crucial step is defining your target audience. While approximately 72% of marketers are familiar with buyer personas, only 30% create effective ones that truly contribute to their marketing objectives.
This discrepancy poses a significant challenge because diverse buyer personas demand distinct advertising approaches. On Facebook, this translates to different target audiences, messaging variations, and landing page strategies. More importantly, diverse buyer personas often convert into different types of buyers.
Understanding your buyer personas is essential for creating an effective Facebook budget. If you have a sales team, engaging in conversations with them can swiftly contribute to building a useful buyer persona, as they frequently interact with your customers.
However, relying solely on internal discussions and basic research may not provide the detailed insights required to formulate an effective Facebook budget. To attain this level of detail, it’s imperative to directly contact your actual customers. Initiate conversations to inquire about how they discovered your business, why they chose to convert, and what influenced their decision to engage with your services. These insights will offer valuable information for optimizing your marketing and sales funnels, enabling you to refine your paid search advertising performance and determine an appropriate Facebook budget.
3. What are Your Customers Worth?
Typically, buyer personas are viewed as valuable tools for shaping an effective marketing strategy, but they are equally essential when constructing an efficient Facebook budget. Consider a scenario where you’re advertising for a SaaS business named SaaS-A-Frass, with a pricing structure targeting three distinct buyer personas: Small business “Steve,” Mid-market business “Mandy,” and Enterprise business “Edward.”
Each persona has unique business needs, reflected in their preference for different packages—Starter, Professional, and Enterprise, respectively. Calculating the lifetime value ( [licenses/mo] x [# of licenses] x [typical customer lifespan in months] ) for Steve, Mandy, and Edward, based on their average lifespan and license purchases, provides insightful data:
Lifetime Value
- Steve: $1,750
- Mandy: $72,000
- Edward: $1,590,000
While these figures seem promising, not all the revenue translates to profit. A typical SaaS company incurs costs of about 22% for fulfillment, 9% for sales, and has a 40% overhead, leaving approximately 29% of the client’s lifetime value for operational expenses. To break even, SaaS-A-Frass must ensure that its Facebook customer acquisition cost (CAC) stays below the following thresholds:
Maximum Acquisition Cost
- Steve: $507.50
- Mandy: $20,880
- Edward: $461,100
Maintaining an acquisition cost below these thresholds ensures profitability, exceeding them results in losses. Understanding buyer personas becomes crucial in establishing the right budget. SaaS-A-Frass, aiming for an 11% total profit margin, can allocate specific amounts for each persona:
Customer Acquisition Cost
- Steve: $315
- Mandy: $3,750
- Edward: $286,200
If SaaS-A-Frass can acquire paying customers within or below these cost limits, it validates the effectiveness of its Facebook ads and aids in determining an appropriate Facebook advertising budget.
4. How Much Do You Need to Spend to Reach Your Goals?
At this stage, the process is straightforward. Simply input your Customer Acquisition Cost (CAC), average purchase order value, and average number of purchases (for subscription models, use the average lifespan of each buyer persona) into this calculator!
The default settings of the calculator display the monthly budget and Return on Investment (ROI) for SaaS-A-Frass, assuming they aim to generate $2,425,500 in new revenue from Facebook advertising each month, requiring 100 sales (comprising 90 Steves, 9 Mandys, and 1 Edward).
In our example, a new Steve pays $125/mo for an average of 14 months, a new Mandy pays $1,500/mo for an average of 48 months, and a new Edward pays $15,000/mo for 108 months.
By entering these values into the calculator, SaaS-A-Frass would need to allocate a monthly budget of $348,300 for Facebook advertising to achieve their new lifetime revenue goals.
It’s an easy process! Experiment with the calculator and various buyer persona metrics to determine a sensible Facebook budget for your business. If you already have a predetermined budget, use the calculator to analyze different buyer personas and identify the target audiences that warrant your focus.
While this approach may not provide a perfect estimate of the efforts needed to meet revenue goals, the calculator’s accuracy relies on the information you input. Nonetheless, it offers a much more informed approach than selecting a monthly budget randomly and hoping for the desired results from your Facebook advertising efforts.
Tying Things Together
To formulate a successful Facebook budget, you must define your revenue goals and understand your buyer personas, including their lifetime value and Customer Acquisition Cost (CAC). Once armed with this information, calculating your budget becomes a manageable task.
If you find this process a bit daunting, feel free to reach out here or in the comments. I’m here to assist you in creating a Facebook budget that aligns with your business objectives for 2017.
How do you go about determining your Facebook budget and advertising strategy? Share your insights in the comments!
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