This is a common question I’ve been asked many times and I wish there was a straightforward answer, but there are a lot of different factors that are involved when deciding on how much money you should spend on testing Facebook ads.
That said, there are some basic guidelines that I always try to follow when I launch a new test campaign on Facebook or any paid traffic platform for that matter.
Before deciding how much you should spend on testing your Facebook ads you need to ask yourself this question. “How much am I comfortable losing if this doesn’t pan out?”
You need to be prepared for the fact that this may not work right away and that whatever money you do decide to budget for your test you might not ever get it back.
Know Your Numbers
Knowing your numbers is without a doubt the most important aspect of determining how much you should plan to spend on testing your ads.
You need to know your COGS (cost of goods sold) and subtract that from your sales price plus any shipping fees to the customer in order to calculate your break-even CPS (cost per sale) that you can spend on advertising.
To illustrate this let’s make up some hypothetical numbers.
First off, let’s say I have a product that I want to sell that has a COGS to me of $15. So I know for every unit that I sell I’m going to have to pay the vendor a total of $15 . This $15 covers the cost of the item along with shipping it to the customer. Don’t forget to add the shipping cost to this number.
Now let’s say that I am selling the item for $35 on my store plus also charging the customer another $5 for shipping for a total of $40.
Given these numbers I would then calculate my break-even CPS to be $25. That means I need to make a sale for every $25 that I spend on advertising in order to at least cover the cost of the goods, shipping it to the consumer and my ad costs.
Of course in that example there is no profit left over, but in my experience if you can at least break-even on your initial test run that is actually a really good sign. Obviously, everyone wants to profit right away and that can and sometimes does happen, but the reality of the paid traffic game is that more often than not an initial test campaign will not be successful right away.
Decide How Much To Spend
Once you know your numbers and are ready to launch your test campaign this is when you are going to have to decide on how much of a daily budget you are going to spend.
This really goes back to the point I made earlier about risk tolerance, but a good rule of thumb that I have used many times is to set a daily budget that is high enough for me to get at least one conversion per day at my break-even CPS.
Going back to our example above that number was $25. So in that scenario a daily budget of $25 would be a good place to start. However, you could go higher or lower than that and still get results.
There really is no hard and fast rule on what sort of daily budget works best because every market and product is different. I just wanted to share with you a method that I have successfully used many times when testing new campaigns.
At the end of the day what you set your daily budget at is not as important as determining how much you are going to spend on running a new test campaign overall.
You need to begin with the end in mind, and by the end I mean you need to know before going in when you are going to shut it off if your test is not going well.
The most important thing you need to be mindful of when you are testing new ads, campaigns and products is to not let emotion get in the way. You never want to be married to a product or an idea to the point that you end up spending way too much on testing, even though it’s failing, because you just believe it’s going to magically turn around.
That is a very easy mistake for people to make when they are just starting out. That is also why knowing your numbers ahead of time is so important. When you have already decided before you start how much you are going to spend to determine if this works or not it makes it 10 times easier to cut your losses and move on when it’s just not working out.
For me personally, I have always followed a 2-3x total budget rule. What I mean by that is I am always willing to spend somewhere between 2 to 3 times my break-even CPS in order to get my first sale (and hopefully more!). If I do not see at least one sale by then I will turn off that test campaign and move on to the next.
So once again using a break-even CPS number of $25, I would make up my mind before starting any test campaigns that I was going to spend between $50 – $75 (2-3x) total and if I did not see at least one sale after spending that much I’d end the test and move on to either a new product or a new campaign with different targeting and creative.
At a $25/day budget that would be letting it run for at least 2 days. Then on the 3rd day I would make a decision based on what had happened whether or not to keep moving forward with the campaign.
Now you might be thinking… “wait a minute, only one sale on $50 – $75 spend is actually losing money!” … and you’re right, but getting the first sale was always enough to let me know that something about this campaign is actually right. It was enough to encourage me to let it go for at least another 2-3 times the breakeven spend in hopes that more sales would now start to come rolling in as Facebook begins to optimize the ad campaign.
Many times that’s exactly what will happen, but you need to still be prepared to shut it off if you do not at least get close to your break-even point after a few more days worth of testing.
Data on what worked and what didn’t work. When you have a failed test campaign don’t just turn it off, throw your hands up and say to yourself… “This will never work!”
Instead, take the time to look at everything you did and ask yourself… “Why didn’t this work?”
Was your targeting wrong? Was it to broad? Is your product just not that appealing? Was your creative just not that compelling?
Read the comments that people left on your ads to see what people were saying about it. If there were no comments that can many times be an indication that people were not very interested.
That goes for your ad’s relevance score and interaction rate as well. I normally tell people not to get hung up on likes, shares and comments as they are not the most important metrics in a Conversion focused campaign. However, I have never seen a successful campaign that does not naturally get them. So if your failed campaign had little to no social interaction that in itself is telling and a good indication of what may have went wrong.
At the end of the day, if you do this long enough you are going to win some and lose some and you will begin to intuitively get a feel for what works and what does not.
So use the advice I’ve given you here to test smarter. Be willing to take the time to learn from your failures and you will do well!
In any case no matter what happens when you are testing your campaigns, whether you find a winner or it fails you need to remember that any time you are paying for advertising you are always getting something in return.