One of the great things about Facebook Ads is that it is entirely flexible in terms of your budget. You can set not only how much you are willing to spend per day but also how much you are willing to spend on any single click on your ads.
But while this flexibility is good news when it comes to finding the right audience, it also adds to the challenge somewhat as now you’re going to have to decide how much you should be spending on your ads – with such freedom, there’s a whole lot more to think about!
How do you calculate this and ensure you get it right?
Working Out Your Conversion Rate and Profits
The first thing to do, is to calculate what your precise profit is each time you turn a visitor into a customer. What are your overheads on each product (your ‘cost of goods sold’) and what is your asking price?
Next, ask yourself what your conversion rate is. For every 1,000 people who visit your website, how many people buy a product? It might be one, it might be .01 or it might be 50. Whatever the case, this will now allow you to work out how much each visitor is worth to you.
So if you have 1,000 visitors and 2 of them earn you $30, you’re making $60 per 1,000 visits. That means that your visitors are worth 6cents each to you. That in turn means that you can afford to pay 6 cents per click and guarantee you will breakeven. If you pay 5 cents per click, you should be guaranteed to make a profit.
There are a few complications and considerations however that make this a little less straightforward than it may initially appear.
For starters, you need to consider what your ‘customer lifetime value’ is (CLV). In other words, some customers might order more than once and that means you can afford to pay a little more.
The other thing to consider is your cash flow – and the fact that you might not perfect your adverts right away. You need to save a little budget in order to experiment with things like targeting and therefore to get the perfect conversion rate. Make sure you don’t burn through your entire budget on day one then and save some for experimentation!