With the new year comes the chance to reflect, reassess, and reinvigorate your Facebook ad budget, ensuring that every dollar spent is a step towards achieving your most ambitious business objectives. Facebook user behavior and algorithm shifts as rapidly as the seasons, crafting a budget that not only reflects your goals but also the evolving landscape is critical.
In this guide, we'll navigate through the core considerations that should underpin your budgeting process for the year ahead. From aligning your Facebook ad budget with your business goals to fine-tuning this by month, and determining LTV, we'll equip you with the insights needed to allocate your ad spend effectively.
Understanding Facebook's Advertising Landscape
In the past years, Facebook has rolled out several updates affecting everything from ad targeting to performance analytics. Some of these changes are subtle, yet they have significant implications for the way your ads perform and the credit that Facebook advertisers can attribute to the platform .
For instance, updates to privacy regulations have altered data collection methods, impacting targeting precision as well as tracking of conversions.
Looking ahead, we anticipate that Facebook will continue to emphasize user privacy and transparency, which will in turn influence ad targeting capabilities and Facebook advertisers ability to forecast returns.
Consideration 1: Business Goals And Objectives
Before you can effectively distribute your Facebook ad budget, you need to have a clear understanding of what you aim to achieve. Start with the end in mind.
Set your companies revenue goals
Start by asking yourself: What are my ultimate goals for this year? Set a revenue amount for the entire year that you believe is attainable for your entire business.
Calculate Organic Revenue
If you spent 0 dollars on advertising how much would your business bring in? This includes everything from social media channels, email, SMS, some affiliate offerings, and more.
Calculate how much will come from each ad channel.
Once you have your baseline revenue number you can work backwards and figure out how much revenue you will need to come from each ad channel.
You can do this in each ad channel by look at the average RoAS for the entire past year and extrapolating your next years budget from this.
For example, if you spent 10k and made 20K for a 2X RoAS then you could roughly estimate that increasing spending to 20k should push you to 40k.
This will give you a rough budget for your ad spend by channel.
Some pitfall to be aware of...
- You audience may not be broad enough to target new customers and scale at the same rate as the past year. This will result in lower RoAS as you scale.
- What percentage of your revenue was new vs returning customers? If the 2x RoAS all came in during the holiday season from retargeting existing customers you may want to consider doubling the size of your retargeting audiences before you get to the holiday season.
- If the retargeting was to new customers that have never purchased. You will need to double that audience size.
- As you scale your Facebook ads you may find overlap between the conversion Facebook is claiming and those that Google analytics is claiming came from other channels. To tackle this you should be using MER marketing efficiency rating to monitor your ad performance. This is a separate blog post that is coming next week. Join the newsletter to stay in the loop.
Consideration 2: Breakdown Facebook Ad Budget By Month
Great you have your yearly budget! Now break it down by month. In this way you can track if you are on pace to hit your revenue numbers. If you have a clear understanding of your business cycle, this will also allow you to adjust your spending based on seasonality, promos, and other external factors that may impact ad performance.
Look Back At Past Year To See Average RoAS
It's important to look back at the same time frame last year to see your average return on ad spend (RoAS) for that month. This will give you an idea of what you can expect in terms of Facebook ad performance and help you allocate your budget accordingly.
Consider Seasonality, Promos, And Other External Factors
Keep in mind that certain times of the year, such as holidays or industry events, may have a significant impact on your ad performance. Take these into account when breaking down your budget by month and allocate more resources towards these peak periods.
You may find that you have more promos for a certain month boosting revenue or less promos reducing revenue, adjust accordingly.
Some additional thoughts...
- Will your organic channels perform better this year reducing your reliance on paid revenue.
- What is the split between new vs returning customers for this promo. More new customers could mean more ad spend to scale if you liked your RoAS from last year.... More returning customers could mean less ad spend if those returning customers help you reach your revenue goals.
- This ad budget is a guideline not exact, so be prepared to adapt as you see your numbers roll in.
Consideration 3: Track Your LTV
Lifetime Value (LTV) is the amount of revenue a customer generates over their lifetime as a customer. It's an essential metric to consider when allocating your Facebook ad budget, as it can help you determine the return on investment for each campaign and make informed decisions about where to allocate more funds.
Understanding the importance of LTV
LTV is crucial because it provides insight into the long-term value of each customer. This information is particularly useful when considering the cost of acquiring new customers through Facebook ads. If you know that a particular campaign may bring in high-value customers with a high LTV, you may be more willing to allocate a larger portion of your budget towards it.
Calculating and tracking LTV
To calculate LTV, you need to determine the average purchase value of a customer, the frequency of purchases, and the average customer lifespan. Once you have this information, you can track your LTV over time to see how it changes based on different campaigns and targeting strategies. This data can help you make more informed decisions about budget allocation.
Adapting your budget based on LTV
Using LTV to track the return on investment for your Facebook ad spending can help you make more strategic decisions about budget allocation. By monitoring changes in LTV and analyzing which campaigns are bringing in high-value customers, you can adapt your budget accordingly to focus more on those specific campaigns. This approach ensures that your money is being spent where it will have the most significant impact on your bottom line.
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