Transcript: Ep #085 Why Your Facebook Ad Budget Doesn’t Matter (and What You Should Focus on Instead)
[00:00:00] Oscar Garcia: Welcome to The OMG! Show, the podcast that helps course creators grow their business with profitable paid traffic funnels. My name is Oscar Garcia and it’s my mission to help you, the course creator, drive more traffic and convert more customers so that you can have a thriving and sustainable business.
In today’s episode, we’re gonna take a look at the black hole of budgeting for Facebook ads and how to approach coming up with a budget that isn’t going to break the bank and ideally give you confidence in coming up with a paid traffic budget you can execute that will get your offer in front of the right people, convert them into customers. And scale your business.
We’re also gonna take a look at why your budget doesn’t really matter when it comes to running ads, how to set up your funnel for profitability before you even run ads, and what you need to pay attention to in order to ensure you get great results.
Before we start, this episode is gonna contain a lot of references to math formulas, tracking metrics, and if you’re a visual learner like me, it might be a little bit hard to grasp, but no need to fear. At the end of the episode, I’m gonna tell you how you can get your hands on some awesome resources that’ll make figuring out your budget and understanding your metrics super easy.
So if you’re like most of us, the idea of creating content can be pretty overwhelming, right? That’s not to say that you shouldn’t be creating content, but you know that if you want to reach outside of your bubble, reach new people and get more traffic to your offer, you’re gonna have to use paid ads at some point.
And while there are plenty platforms to choose from, for me, Facebook Ads or Meta Ads are the easiest to start with.
But then come the questions. How much are ads gonna cost? Will I see a return on my investment? How much money should I budget for my ads?
The risk of losing money that you may or may not have is enough for people to simply stop thinking about running ads and do more of whatever they are doing now, which in most cases is creating more content, pitching to the same people all over again, trying to find the latest hack to increase engagement, increase followers, and at some point make a few bucks to justify the effort.
Sadly, in most cases, those efforts might produce a result, but not enough to feel secure and stable, which can really affect your mentality. I mean, someone can only take so many hits before they start to feel, a certain type of way.
The truth is that when it comes to creating a budget and running ads effectively, it’s less about budget and more about understanding the milestones you need to hit in order to achieve a successful ad campaign.
I remember what it was like back in 2015-2016, setting up my first ad campaign and thinking, “What if it doesn’t work? What if I lose money.”
And yeah, look, that’s a very real risk. See, for me, it wasn’t my money that I was using at the time, it wasn’t my clients. And at the time, this was my only shot. So that added extra pressure.
It was also the first time I was running ads ever. So I could either dwell in this, “is it gonna work state of mind” or think about it differently.
I switched around my mentality to think about “what if it did work? And even if it’s not working, what can I do to ensure that it does?”
I mean, after all, the ads are only meant to drive traffic.
The offer is what’s responsible for making the sale. And the offer was something that I could control. I knew I could make changes to the sales funnel to make improvements.
And worst case scenario, if it doesn’t work, then at least we have some data to make a decision rather than a feeling of “What if.”
But we still had to gain more confidence before we launched our campaign.
So thankfully my client had a background in finance and analytics, so we took out the old whiteboard. We started mapping out our funnel and figuring out what metrics we really cared about and what key performance indicators we needed to reach in order to get success.
Think of it this way, when you want to accomplish a big goal, you don’t focus on the goal itself, but rather you focus on the small milestones that get you to the goal, right?
It’s the same thing with your ads, which is why when people ask, how much should I budget for ads, they can never really get a direct answer because that’s not about your budget.
It’s about the metrics you need to hit. Is a thousand dollars enough for ads? I don’t know. How much does it cost you to acquire a customer? What is your average order value?
It’s understanding those metrics that will make your ad campaign successful. Going back to that first ad campaign, we eventually scaled it up to where it took the business, past the half a million dollar mark, but it wasn’t by looking at the budget, it was by looking at our key metrics.
So how do you do this for yourself?
Well, before you think about your ad budget, you must understand how your sales funnel is structured.
Are you doing a self-liquidating funnel? Are you doing a challenge? Are you doing a webinar?
Why is this important?
Because you need to understand how many steps there are in your funnel.
Each step in your funnel will have its own conversion rate going from one step to the other.
That conversion rate is going to affect your budget and your return on investment.
The first thing I do is I open up a Google sheet and map out my entire funnel.
So let’s say I wanna run ads to my sales page.
When visitors are on my sales page, they’re gonna have to click a little buy button. Then they’re gonna go to a checkout page, and if they complete a purchase, they then go to my confirmation page.
So that’s this very simple three-step funnel. That three-step funnel has two conversion points. Those going from the sales page to the checkout page, and those who are on the checkout page going to the confirmation page, meaning they became a customer.
So what I do next is I estimate conservatively, What those conversion rates are. Since this is a typical funnel that I run a lot of the time, I’m gonna use 10% conversion rate between my sales page and my checkout page, and 50% conversion or on my checkout page, I should say.
Now that I have those conversion rates, I can start working with the numbers.
So let’s say I’m selling a course that costs 97 bucks, and in one month I wanna make $10,000 in revenue. I need to figure out how many courses I need to sell.
So 10,000 divided by 97 comes out to 103 courses that I need to sell. In that three step funnel, what is responsible for generating sales? It’s the checkout page.
So I look at my sheet and I see that I put 50% conversion down on the checkout page.
So what I do is I divide 103 by 50%, which means that I need 206 people on my checkout page.
Okay, but where are these people gonna come from? Well, these are the people that are gonna click that buy button on my sales page, right?
So I go back to, you know, my spreadsheet and see that I put that my sales page is converting at 10%.
So what I do now is divide the 206 people by 10%, which gives me 2060 people that need to visit my sales page.
I have just mapped out the sales funnel. I know how many people I need to send to my offer. This tells me that if our numbers hold true and we’re actually running ads, I’ll end up sending 2060 people to the sales page and add of those, 10% are gonna click on the buy button, which then means 206 are gonna visit the checkout page. And if my checkout page is converting at 50%, that means that I’ll generate 103 customers.
This is what I mean that your ad budget and funnel profitability comes down to a simple math problem.
So what happens next? Well, I need to figure out how much it’s gonna cost me to send those 2000 people, 2060 people. So at this point, I need to ask myself, do I want profit or do I wanna break even?
I’m gonna go for profit.
So I said I wanted to make $10,000 in revenue. I’m gonna use half of that to run these ads. So my budget is gonna be $5,000.
So I need to send 2000 people to my sales page. That means I can’t spend more than. $2.42 to get a click on my ads. This also means that I can’t spend more than $48 to acquire a customer, $48.50, right?
But now we have those key performance indicators that we can use to run our ads.
See, your budget comes out of your potential revenue, but in the big picture, it’s less about budget and more about how you measure up to your KPI.
In the example I just went through, it’s, it’s more about did I hit my cost per click? Did I hit my customer acquisition cost?
Just because we picked to spend $5,000 does not mean we need to have $5,000 right now to start running ads.
So typically what I do right before I run ads is set my campaign budget. This is how much Facebook is going to spend each day to determine this, I look at what value a new customer brings to my business.
In this case, it’s $97. So what I do for my campaign budget is 4X that amount. So in this case it’d be around $388 for the day.
I do this because Facebook needs a certain amount of conversions in a given period in order to optimize its algorithm to find more of the right people who wanna buy my offer.
If your daily ad budget is too small, you might end up with getting stuck in learning phase, which means your ads are pretty much dead as the algorithm does not have enough data to optimize.
As these ads run, I look at my kpi. If my ads are matching up to what I laid out in my Google sheet, perfect. I leave the ads on because I know mathematically that I’m gonna make money.
If the ads are hitting or even beating the metrics, I start to scale my ads.
If the ads are not hitting the kpi, let’s say the cost per click is higher than what I need it to be, or if I’m paying too much to acquire customer, I turn them off and analyze where can I improve? Is it the ad or is it the funnel?
And that’s how you end up creating a paid traffic plan that makes sense and gives you more confidence moving forward with your paid ads.
Now you know that it’s less about budget and more about understanding your key performance indicators so you can avoid donating more money to the Zuckerberg Foundation and going for broke.
So there you have it. Map out your funnel. Determine your conversion rates for each step and do the math to determine your KPI.
Remember, it’s less about your budget and more about your KPI.
Now, if you’re like me and you don’t wanna do the maths, or you’ll wanna figure out your KPI even faster, I do have a free calculator you can use the speed up the entire process, which you can find insid e of my free community called Marketing and Mojitos. It’s free for the time being, and on top of getting access to this calculator, you also get additional resources you can use to grow your business. Not to mention, if you have a question, you’re gonna get the exact answer you need at the right time.
So head on over to www.oscargarcia.com/beta to sign up or click the link available in the show notes. Thank you for listening to this episode of The OMG! Show. Enjoy the rest of your day and make sure to tune in for the next one.