How Much Should Small Businesses Budget for Facebook Ads?

As a consultant focused exclusively on assisting small and medium businesses with their digital marketing efforts, one of the most common questions I get asked is: "How much do we need to spend to see results with Facebook advertising?"

It‘s a great question, because every business has a limited marketing budget, and you want to allocate it for maximum impact. In this post, I‘ll break down everything an entrepreneur needs to know to set an optimal Facebook ad budget.

Average Costs: Benchmark Data to Inform Your Budget

Industry averages provide a solid starting point for calculating potential ad costs:

  • Average CPC: $0.35 globally; $0.50 for Western Europe; $0.29 for North America (WordStream)
  • Average CPM: $7.19 across all industries (Hootsuite)

However, your business‘s specific costs can vary widely depending on factors like:

  • Your industry vertical
  • Location targeting
  • Ad creative quality
  • Landing page optimization

For instance, a local retailer marketing only to customers within a 10 mile radius can likely achieve much lower CPC/CPM rates than a global ecommerce store targeting a broader audience.

Here are average costs for some verticals:

Industry Avg. CPC Avg. CPM
Retail $0.58 $8.43
SaaS $1.22 $11.76
Ecommerce $0.91 $10.32

The Role of Budget in Cost per Result

An interesting connection exists between budget and cost per result with Facebook ads.

Small daily budgets often lead to higher effective CPC/CPM rates. That‘s because it takes time for Facebook‘s algorithm to optimize delivery towards people likely to engage.

Whereas larger budgets allow more room for testing, scaling efforts that work, and driving down average costs over time.

Budget Avg. CPC Avg. CPM
$100/day $1.20 $15
$300/day $0.85 $12
$500+/day $0.55 $8

So when just starting out, begin with smaller daily budgets around $50-100 to test the waters. Then increase to $250+, monitoring costs per conversion. Often you‘ll see that greater spending power unlocks substantially lower costs.

Calculating Your Budget Amount

First, outline your Facebook campaign‘s KPIs…

  • Do you want 100 new email subscribers this month?
  • A 15% increase in online bookings?
  • $5,000 in new sales revenue?

Using your target KPIs and industry benchmarks, determine potential costs per conversion.

Next, factor in your customer lifetime value (LTV)…

  • For a SaaS company, this might be 12 x average monthly contract value
  • For an ecommerce site, this could be 3 x average order value

Finally, calculate your break-even CPC and potential budget range to input in Ads Manager when launching campaigns.

Say your target cost per conversion is $50 over a 2 week test run. If your LTV is $300 per customer, your breakeven CPC would be $300 / 50 = $6. Plug that into your CPC bid, and scale up budget while monitoring conversion volumes and cost per result.

Following this framework allows you to optimize spends based on real ROI measurement.

Key Takeaways

  • Benchmark industry average costs, then track your specific CPC/CPM by ad set
  • Start with small daily budgets around $50, then scale up
  • Factor in LTV and break-even costs per conversion when calculating potential budgets
  • Continually optimize for lower CPC/CPM and greater conversion volumes

With the right budget plan tailored to your business‘s specifics, Facebook performance marketing can become a powerful channel for sustainably acquiring quality customers.