Everyone likes secret formulas, right? - De-mystifying Your Google/Facebook Ad Budget
[in my best infomercial-guy voice] Have you asked yourself "Should I run ads on Google/Facebook for my business?" Do you not have the super sophisticated techno-brain required to answer this question for yourself? There must be a better way! Well, now you can - and it is easy!
[end informercial voice]
I'm about to share a SECRET. Advertising agencies will blacklist me for opening the gates to this paradise of data. I may never work again! Oh no!
This is totally classified stuff you can't find ANYWHERE. Unless you... wait for it... use Google and find it. But seriously, sometimes the best knowledge is hiding in plain sight.
Here's how to make sense of what Google Ads and Facebook Ads can do for you based on your industry and budget - with some simple math.
You're considering diving into Google or Facebook Ads for the first time but you might not know someone that runs ads - maybe all you have is your social media person, website guy or graphic designer to ask about how it works and they may not be well-versed - I've literally been that not-well-versed person, which is how I came to learn what I'm about to share with you.
How do ads perform in your business category? Did you know that Industry benchmarks are free and readily available? So how do you use benchmarks to budget and/or see if paid internet ads will make sense for you?
You can reverse engineer the average ad performance with these metrics: Click-through rate (CTR), Cost per click (CPC), and Conversion Rate (CVR). Like some of my middle school report cards, that's a bunch of C's. Don't worry. I saw Good Will Hunting in high school and decided to actually try to be a smarter kid so we're all good now.
Let's use simple fake math to keep this from being an unreadable MESS.
Let's say advertisers in your category have a click-through rate of 5%, a cost per click of $3, and a conversion rate of 5%. Now if you want to know what kind of average results you can expect for a budget of $5,000, it's easy to calculate.
How many clicks does $5,000 buy you? at $3 per click, about 1,667. Let's be optimistic and say 1,700.
How many of those convert into leads or sales? At an average of 5%, that's about 85 conversions.
Bottom line (for this made-up business with made-up statistics) - $5,000 gets you about 85 sales or leads - at a cost of about $58 each - this is your Cost Per Action (CPA).
If you are selling handmade soaps for $15 each, that might not be a CPA that makes sense for you. That made-up number might make sense if you're selling high-dollar items like special equipment or real estate, or providing professional services like law, medical, or licensed contractor work, it could be a gold mine for you.
On the other hand if you're in apparel where the average CPA is around $10, you might be very profitable if your average order value is high enough.
I would like to add that these were made-up numbers and averages across ALL types of users, both amateur and professionals. I have a client in health services that does 4x the industry average - I don't have some secret - I just run their campaign well and manage it regularly. Most people don't.
The Big TL;DR: You can easily calculate how many results (your Cost Per Action) you can expect for your ad budgets on average - but expect better results if you are paying a professional. You can use this info to gauge if your marketing efforts need adjusting.