Whether you are new to Facebook advertising or you’ve been experimenting with it for a while, it can be confusing to figure out the correct budget allocation for your ads.

Too much and you’re wasting money. Too little and you’re losing potential sales.

So how do you find that sweet spot?

Unfortunately, there is no simple answer to that. We work with merchants with daily spend ranging from as little as $100/day to upwards of $50K/day. Each store’s situation is unique and so are its objectives.

Based on what we’ve learned from working with 100s of founders and agencies, we’ve put together a simple set of guidelines to help you plan your budget regardless of your daily spend.

Your audience can be divided into hot, warm, or cold.
Cold audience: Potential buyers who haven’t been exposed to your brand yet. This is the Top of your Funnel (TOF).
Warm audience: Past purchasers and visitors who have visited your store between 30 to 180 days ago. This is the Middle of your Funnel (MOF).
Hot audience: Past purchasers and engaged visitors who have been to your store in the past 30 days. Ads served to Hot or warm audiences are known as Retargeting ads. This is the Bottom of the Funnel (BOF).

Budgeting for Cold/TOF Audiences

Budgeting considerations differ widely between TOF and the MOF/BOF campaigns. Let's discuss budgeting for the TOF campaigns first. 

To keep things simple, let's assume your new customer CAC is $40 and your average order value (AOV) is about $100. I’m also assuming we are testing budgets for a new ad-set to see if it’s worth scaling.

The expected outcome is either (a) the ad-set doesn’t work and we shut it, or (b) it works well and we would like to slowly scale the spend on it.

The Ideal Setup

When launching a new ad-set - whether you are testing a new creative or a new audience - the aim should be to try and get 50 conversions within the first week, or die trying i.e. kill the ad-set/creative.

Why 50 conversions per week? Because that is what Facebook suggests an ad-set needs to get out of the learning phase. Does the learning phase matter? That’s a separate topic for another post. 

What we do know is that campaigns that have good learnings do perform better. You want to have a reference point in your head and then work backwards to adapt this framework for your business and budgets. 

50 conversions per week would mean:

• ~7 conversions daily. 
• With $40 as your average CAC, that means you need to spend at least $280 (7*$40) to acquire these 7 conversions.
• The campaign may be slower the first few days as it learns and may pick up later in the week as FB picks up more data.

The Realistic Setup

Not every business can spend 7x CAC daily to test every new creative or ad-set. However, you can’t spend too little either or you won’t get enough learnings and data points to know if your creative/ad-set is working.

On the lower end, spending less than your CAC (1x nCAC) daily is usually too little to test a new creatives. Try to spend at least 2x your CAC everyday to effectively test your ad.

Since you are spending less, make sure you:

• Don’t judge the performance too quickly. Let this ad-set spend at least ~2X your AOV over a few days before you adjust the budget up or down.
• Increase the budget by less than 20% to ensure that your learnings are not reset.

To summarize, if you have limited budget, give the ad-set a chance to spend some money before concluding anything. Also, unless the performance is terrible, let the ad-set run for at least 5~7 days and don’t adjust budgets more than once every 2-3 days.

Budgeting for Warm or MOF/BOF Audiences

Hot and warm audiences are tracked by the Facebook pixel installed on your website.

Before iOS14, we had a pretty accurate formula for predicting daily budgets for MOF and BOF audiences. However, post iOS14, 2 things have changed:

1. Your potential reach for retargeting is a lot smaller than the people in your pixel. Many have opted out of tracking with iOS14 and Facebook isn’t able to reach them effectively.
2. Your BOF reach is usually so small that it’s better to combine your BOF with part of your MOF - so target 0-45 days visitors instead of splitting them into BOF and MOF.

How Do You Budget Post-iOS14?

You don’t. You focus on the frequency of each creative and not on budget.

Regarding budget, there’s no real good answer anymore. With a 45 day bucket and diminishing reach, the main concern isn’t budget but frequency. 

You don’t want to show the same ad 20 times to a small audience of 20K people in a 45 day period. People will develop banner blindness and it’s bad for the brand - your ads seem pushy and desperate. 

The recommended approach now is having multiple creatives targeting your MOF+BOF combined and keeping a close eye on the frequency of each creative.

The starting daily budget for any new ad-set/ad can be 1x CAC or if you have the budget, then 1x AOV. Then you keep an eye on the frequency of the creative and make sure it doesn’t cross .5 times your bucket length - so once every 2 days on an average.

Let's explain this with an example. 

Lets assume you are retargeting a 30 day bucket (people who visited your site but didn't purchase in the last 30 days). Make sure that:

1. No single creative's frequency is more than 15 in the last 30 day data (your time range is 30 days when you are reviewing your analytics).
2. You have multiple creatives targeting this bucket - ideally you want to reach them via a carouse, a video ad and images (feed and story placement). This way they aren’t seeing the same ad over and over again.
3. You manage the budget to control the frequency.

Dynamic Product Ads and frequency - DPAs continue to be super effective, even though it’s harder to measure them directly via first party pixels. The reason for that is they end up driving a lot of Add-to-Carts (ATCs) and moving the customer closer to the point of sale. Many times those sales show up as direct or brand searches as DPAs are targeting people with brand awareness and existing affinity to the the brand. It is my strong recommendation that every store run DPAs - even if it is on a small budget. 

However, the frequency of the catalog ads / DPAs tends to rise quickly. At Socioh, we developed our smart switch offering to specifically combat this problem. With smart switch you can edit the design/messaging of your DPAs without resetting learnings, allowing for a far higher frequency than you would have been able to have otherwise. Take a look and let us know if you have any questions.

Tweaking Your Budget

Ok, so you’re off to a good start, but you’re not done yet.

Each brand, each audience is different and you now need to ensure that you are optimizing your budget for your business.

PRO TIP 1: Take your time

We suggest that initially you assess your ad’s performance every 48 hours and tweak your budget according to the results you are seeing.

Don’t be in a hurry to experiment. Change only 1 factor in your ad at a time. So if you are experimenting with your budget, don’t touch your copy or audience, or you won’t know what caused the change in your data.

Also, wait a few days after every change before you assess the impact of your experiment. After an edit, it may take up to 48-72 hours for the ad to start performing optimally. Sometimes outside factors like the day of the week or a sale by a competitor could throw off your ad metrics, so always give your ad time to perform before you judge it.

PRO TIP 2: Clone and experiment

If you are concerned about experimenting on a well performing ad-set, simply clone your ad-set and change the budget of the cloned ad.

Make sure you exclude site visitors from your cloned cold ads as these have already been targeted by your original ad.

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