One of the biggest questions that small to medium-sized businesses have regarding digital marketing is how much it’s going to cost. While some fear that marketing on platforms like Facebook is expensive, the good news is that Facebook provides you with intuitive, measurable insights that put you in control of your advertising. That being said, it can be a bit of trial and error trying to figure out the sweet spot in how much you should spend on Facebook advertisements.

Lucky for you, Responsival - the leader in Pittsburgh web design and marketing - is here to take that guesswork out of the equation. In this blog post, we’ll break down the formula for defining an ad spend on social media, what you need to know about each step of the equation, and show you how to troubleshoot your ad. Let’s get started!

Defining an Ad Spend: The Secret Formula

Pittsburgh Web Design & Marketing Experts Share Their Ad Spend Formula

There are a few factors you want to consider when defining a social media ad spend. Here’s our baseline equation for defining your budget:

Your target sales / cart completion rate  = number of clicks needed 

Number of people clicks needed / CTR = reach (audience size)

Number of clicks x CPC = budget

What does this formula mean, and how can you define variables like CTR (click-through rate) and CPC (cost per click)? The team at Responsival is here to break it down for you.

What are the Three Main Steps in Defining an Ad Spend?

Set Your Objective

The first step in any campaign is identifying your objective. What do you want the ad to accomplish? Do you want to sell products, increase brand awareness, have someone book an appointment, find a lead? Social media ads allow you to choose an objective for your ad during the design process, but it’s important to have clear goals in mind when getting started. 

Setting the proper ad spend requires you to have measurable goals. For instance, say you want to sell 40 of a specific product through your e-commerce website. You want to build an ad that takes the people who see your ad to your website where they can learn more and decide to purchase. However, e-commerce experts know that shopping carts are frequently abandoned before the sale is completed. 

How do you account for cart abandonment when defining your ad spend? The average cart abandonment rate across devices is 75.6%, which means only about 25% of the users who ‘add to cart’ end up finishing their purchase. Additionally, not everyone who makes it to your website is going to click ‘add to cart,’ which brings the average conversion rate on e-commerce sites down to about 2%, depending on the industry.

While this statistic may seem disheartening, it’s important to know when setting your ad spend. If you want to make those 40 sales but only 2% of those who reach your website are going to convert, you want to make sure your ad is clicked on about 2,000 times. Knowing that you want at least 2,000 clicks on your ad is the first step in defining your ad spend.

Identify Your Goals CTR

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Now that you know how many clicks you want to get on your ad, it’s time to confront another disheartening statistic: click-through rate. CTR is the rate in which people who see your ad are going to click on it. In other words, this rate defines how large your audience must be in order to reach your desired number of clicks.

What’s tricky about CTR is that it is perhaps the most volatile of all website and digital marketing benchmarks. CTR is heavily industry-dependent and is a standard that many businesses are consistently working toward rather than achieving in their first few ads. Above we’ve included the average click-through rate on ads by industry. As you can see, it’s generally easier to get someone to click on your ad if it’s something that they are interested in already - like a hobby, leisurely activity, or an important news article - than industry-related products and services.

Because reaching and industry-average CTR means that you must create ‘the perfect storm’ of an ad - with proper ad copy, compelling imagery, and perfect targeting - the team at Responsival starts all ads with a goal CTR of 1%. Over time, you’ll learn your audience and what it responds to, allowing you to raise this benchmark.

We use this goal CTR to determine how many people need to see your ad to yield the number of clicks you’re looking for. If you need 2,000 clicks to reach your objective, but only 1% of those who see your ad is going to click it (a 1% CTR), your ad needs to be seen by about 200,000. This means your audience should be no less than 200,000 people when designing your ad.

Set a Realistic CPC & Budget

We’re almost there, everyone. Now that you know how many clicks you need to reach your sales goals and about how many people need to see your ad to reach that number of clicks, it’s time to set your budget. Depending on your platform, ad objective, and the settings you choose for your ad, you’ll be choosing between two different benchmarks for payment:

• CPC - Cost Per Click: This is just like it sounds. CPC is how much you are being charged per click on your ad. This relates directly to the number of clicks you need. This is a more common, straightforward benchmark for measuring the success of an ad.
• CPM - Cost Per Mille: CPM is the cost per 1,000 impressions, or how much it costs for 1,000 people to see your ad. This relates to your audience size and is how some platforms charge you for your ads based on your objectives. You will often be supplied both the CPC and CPM for an ad you are running.

Responsival - a leader among Pittsburgh web design and marketing companies - defines a good starting benchmark for CPC at $1 per click. However, this can vary based on how well your ad is designed in addition to your ad objective. Different ad objectives lead to different CPCs because some actions are considered more valuable than others. In other words, it takes a lot more convincing for someone to follow you on Facebook or complete a lead form than to click a link a view a webpage. For this reason, a simple web traffic ad is a great choice for keeping your CPC low.

To define your budget, all you have to do is multiply the number of clicks you need by your CPC. If you need 2,000 clicks and plan for a $1 CPC, your ad budget should start at around $2000. Once you gain experience in creating ads, lower your benchmark CPC to $0.50 or $0.25 and tweak your ad accordingly to reach your budget and sales goals.

Troubleshooting Your Ad Performance

I’m Using this Formula and Not Reaching My Benchmarks… Now What?

While this formula can help you define a great starting point for your ad spend, there are many moving parts involved with social media ad design that can change the way in which your ad performs. Great ads involve perfect targeting, stellar design, compelling CTAs, strong copy, and careful monitoring of performance. When your ad isn’t performing the way you want it to, it’s important to know how you can adjust your ad to fix your issues. Here are a few scenarios you may encounter with your ads and ways you can adjust your ad to fix the problem at its source:

• My CTR is too low. A low CTR means not as many people are clicking on your ad as you’d expect. This usually stems from poor targeting or non-compelling ad design. Reevaluate your audience or conduct an A/B test on your audience to see if you can identify who in your audience is and is not clicking. Additionally, adjust your ad copy and imagery to appeal to each audience. For instance, if you’re concerned that the older segment isn’t clicking on your ad, create an A/B test that creates ad copy and uses imagery that appeals to an older audience compared to an older audience. This may not immediately help you reach your goal CTR, but may help it drop significantly.
• My CPC is too high. If the amount you’re being charged per click is too high, there are a variety of issues that may be occurring. The most likely reason for your CPC being high is having too narrow of an audience. If your audience is too small and they are not clicking, your social media platform will continue showing your ad anyhow. Seeing this ad frequently raises your CPM so that when someone finally DOES click on your ad, it costs you more than you would have hoped for. If this is the case, try expanding your audience -- increase the age range, mileage, or interests of your audience targeting.
• My audience size isn’t right. If you build out your audience with what you feel is perfect targeting and your audience is very small, you’ll need to perfect your ad copy to increase your CTR. Consider creating a variety of small audiences and customizing the text to each group - calling them out by individual locality, for instance. If you find that your audience is too large for your budget, try splitting your audience into 2 groups and perform an A/B test. Use the winner of your A/B test for this ad, saving the other portion for a later date.
• I’m landing on my benchmarks, but my audience isn’t converting. If people are getting to your website and the stars appear to be aligning with your benchmarks, there is likely something wrong with the design of your web page itself. If you think this is the case, get in touch with Responsival for a free diagnosis of the webpage in question. We’ll walk you through how you can improve ad copy, CTAs, and imagery to boost conversions.

Navigating the world of social media ads can be difficult. With a great amount of variation between platforms and industries and a number of moving parts in each design, you may need some guidance when creating your ads. If you’re looking for help with social media ads, get in touch with Responsival - the leaders in Pittsburgh web design and marketing - to learn how we can craft an ad campaign that helps you reach your objectives.