#52: How Much Should I Spend on Advertising? Planning your FB & IG Ad Budget to Maximize Profitability

 

Alison Smith: [0:59]

Welcome to the Umai Social Circle, where we taught consumer goods tips to help business owners and marketers grow. Today, it is just me, Alison. I am one of the co-founders of Umai Marketing. I’m giving Karin a break today, and I am going to be speaking about our series on all things Facebook and Instagram advertising. 

 

So let’s dive into it. So today, we’re diving deep into a topic that we get asked frequently, how much should I spend on Facebook and Instagram ads? We get it spending your hard-earned revenue on Mr. Mark Zuckerberg cannot feel so great. So we are here to try to reframe your mindset into something more along the lines of spending my hard-earned revenue on my business equals investing into my business’s growth. So today, specifically, we will break down some guidelines on how much you should spend at any point in your business so that you can slay your goals without breaking the bank.

 

[2:06] 

Our first tip in today’s episode is how to set your advertising budget. The first thing is we need to set a budget that makes sense for where your brand is now and where you want to take it in the next 6 to 12 months and beyond. The general rule of thumb here is to spend 20% of your monthly revenue on ad spend if you’re in growth stage. So if you’re making $10,000 a month, plan to spend about $2,000 a month on acquiring new customers through advertising. Once you start hitting target costs to acquire these new customers and hitting your overall goal return on ad spend, then you can decide if you’d like to scale this budget as your revenue scales.

 

[2:54]

Now, there are some caveats to this as well when advertising on Meta, as you’ll also want to take into account your AOV or your average order value. If your average order value is say $30 per purchase, well then you’re likely looking at a target cost to acquire a new customer around $15 on average. But if your AOV is much higher, say it’s like $400, then your cost to acquire a new customer maybe closer to say $200. Well then it’s going to cost you a bit more to acquire a new customer as it’s not going to be that no-brainer, quick-to-pull-the-trigger type of purchase for this person, it’s going to be likely a longer sales funnel process where they may weigh the pros and cons of your product. They’re going to likely conduct their own research, look at your competitors. They might talk to their spouse before they even make a purchase of this size. They might wait for their payday even. So the slower timeline for them means a longer ad funnel for you, hence generally the larger ad costs to acquire this person.

 

[4:09]

The reason you need to understand this is that in order to be successful with Meta sales campaigns is that you need your campaigns to receive at least 50 conversion events per week in order for the Meta algorithm to better optimize on your behalf. This is because it will gain more data points and 50 is really the minimum here for it to gain enough data points, and that overall is going to help you get a lower cost per acquisition. So if you are a CPG brand with a lower price point, let’s stick with that $30 AOV that we spoke about earlier and you’re shooting for around a $15 cost per acquisition or less. Then you know in order to receive those 50 conversion events in a week, you’ll need to spend at least around $750 a week or around $3,000 a month.

 

[5:07]

But say you fall into that higher price point category and you’re shooting for that $200 cost per acquisition, well then you know that in order to hit about 50 conversion sales events per week, you’re going to need to spend closer to $10,000 a week or 40k a month in order to hit that full optimization of your campaigns. So you can really see that your product retail value can change your ad spend plan, but of course, you can always start with around 20% of your revenue. And then based on the amount of conversion events you receive each week, if it’s under that 50 or over that 50, you can increase or decrease your budget from there.

 

[5:52]

So this brings us to our second tip, which is how to scale your budget once you’re hitting your goals. You don’t want to scale too fast as this can cause your campaign learning to reset and lose optimizations. Therefore, we recommend three paces to scale. You have slow scaling, medium scaling, and fast scaling. So let’s start with slow scaling. Slow scaling is to scale your spend. That’s a lot of S’s. So scale your spend budget by about 20% month over month. This is great for solopreneurs who are managing their ads themselves or for startup brands who want and need that stability. This way you can check your monthly return on ad spend at the end of each month and increase spend only once a month in your account.

 

[6:43]

The medium scaling is to scale spend by no more than 50% every seven days. This allows you to jump in only weekly, like perhaps every Monday morning and adjust the budget accordingly for the week. So say you had a really good week the previous week, everything is stabilized at this point. You can increase it up to 50% with the medium scaling and then fast scaling is no more than 50% every three days. This is best if you’re in growth mode or if you’re running a promotion and seeing a great return. Three days is generally the fastest you’ll want to scale your spend and your ad account for Facebook and Instagram ads as data can be delayed by 72 hours. So you don’t want to make decisions any faster because you’re not going to have all the data to make informed decisions.

 

[7:34]

And then finally, for our last Meta ad spend tip, let’s talk about how to break up your ad spend between prospecting for new customers and retargeting warm or existing customers to come back and buy from you again. We generally will use the 80-20 rule for splitting the budget between these two groups. So between prospecting and retargeting. So 80% is reserved for attracting and converting new potential customers while 20% is for retargeting people who have visited your website, engaged with you on social profiles or on your email list as leads. This group also includes people who have order from you in the past and it’s time for them to buy again.

 

[8:18]

Now, if you are a more established brand and you’ve either been advertising for a while and have a solid cost per new customer acquired and or are making at least 10k in sales a month organically online, then we would recommend splitting this percentage a little differently by giving a bit more weight to the prospecting budget. So instead of sending 80% on prospecting for new customers, we would generally spend closer to 90% of your ad spend on prospecting and then the remaining 10% for retargeting warm and hot leads to come back and buy. The reason for this is because Facebook and Instagram ads are really best used for acquiring new customers as a lot of times you can remarket to your leads in more cost-effective ways like through email marketing or through organic social. So therefore, if you’re a more mature brand with a more proven product and sales, you have all these other marketing cylinders firing on your behalf, then splitting the budget on Facebook and Instagram by a 90-10 rule will give you the most benefit to your brand’s growth and you will get more bang for your buck.

 

[9:37]

And that wraps up our episode on how to best budget and plan your Meta ad spend for the best results. I hope this left you feeling better armed to tackle social advertising for your brand. And if you have any questions or war stories about your own Facebook and Instagram ads, shoot us a DM on social. We’d love to hear from you. And then stay tuned for our next podcast episode as we’ll be talking Facebook and Instagram ad strategies to help keep you scaling. But in the meantime, keep converting and keep slaying those marketing goals.

 

Karin Samelson: [10:13]

Thanks for listening to the Umai Social Circle, y’all. We’re here to support you in your CPG journey, so be sure to subscribe so you don’t miss any new podcast episodes. While you’re at it, please leave us a review on your listening platform of choice. Shoot us a DM at UMAI Marketing on Instagram if you have any topics you want us to cover on new podcast episodes.

 

Alison Smith: [10:31]

And don’t forget to access our free masterclass where we’re showing you how to create a solid marketing strategy. You can access that at umaimarketing.com/masterclass and we’ll meet you back here for the next episode.