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How To Determine The Budget For Paid Ads Campaigns

One of the most discussed, yet misunderstood, aspects of launching a paid campaign is its budget. Not setting realistic projections for a marketing plan can destroy a business.

Imagine

A small e-commerce brand making $50k per month has the goal of scaling to $150k per month with paid advertising. The internal team runs with their gut feeling, believing they could achieve the additional $100k in revenue by spending $30k per month on ads.

However, had they referenced existing data to set an accurate projection, they would have discovered their average Return On Ad Spend (ROAS) was only 2x. In order to achieve an additional $100k in revenue from the planned $30k, they would have to build a plan to improve their marketing performance to achieve a 3.3x ROAS. Using historical averages, this revenue increase would require $50k instead of the original $30k projection.

By using historical averages, they gain the ability to better predict future outcomes. Once a brand understands its existing data, making a plan for growing and expanding is easier. We’ve observed many ways that brands determine the required investment for their marketing efforts, but today we’re going to dive into our own method to help you set accurate projections and set realistic KPIs.

Knowing Your Campaign and Industry Averages

If you’ve never run ads and are looking to start, then projecting your marketing performance can be difficult if you don’t know where to look. Thankfully, there are many resources available to provide you with some of the basics to have a window into how your campaigns could perform. To provide a window into how your campaigns could perform, we’ve created a graphic based on data we’ve gathered from third-parties and our clients’ performance over the past few years.

NOTE: To get the most out of the graphics below, use the data as an indicator of how average brands perform within particular industries. This will ensure you don’t set unrealistic expectations for your current product, content, offer, etc.

Average Cost Per Action (CPA) metrics by industry
Average Cost Per Click (CPC) metrics by industry
Average Click-Through Rate (CTR) metrics by industry
Average Conversion Rate (CVR) metrics by industry

Now let’s leverage this data to set growth projections and targets. Below is a list of metrics we’ll need to pull from industry data and our historical account averages:

  • Planned Monthly Budget
  • Cost Per 1k Impressions
  • Click-Through Rate
  • Website Conversion Rate (From Ads)
  • Average Cost Per Purchase
  • Required Return On Ad Spend
  • Average Order Value

Setting Goals And Understanding Your Data

The most common goals when growing a business are Gross Revenue and increasing the Average Order Value (AOV) of first-time customers. These goals can be directly influenced by paid marketing performance — especially with cold traffic targeting.

Cold traffic is the most expensive and difficult audience to convert. Improving the cost of turning cold traffic into revenue is one of the most powerful optimizations you can make to your ad campaigns.

To set these goals, start by determining your current averages and how much they’ve changed over the last few months, quarters, and/or years. Doing so will help you understand how your business is changing and where you can improve. 

You might find that your business is growing by 12% annually, but new executives want to aim for a 20% growth rate in the upcoming fiscal year. By comparing campaign performance to growth goals, you can begin to understand the difference between targets, realistic goals and what levers you need to pull to reach them.

Example

Let’s use the goal above as an example in our projections:

Current Averages

  • $50,000 Monthly Recurring Revenue (MRR)
  • $50 Average Order Value (AOV)
  • $12,000 Current Ad Spend

Growth Goals

If the company is looking to grow by 20%, then we have two levers we can play with to reach that goal:

  1. Improving the customers’ Average Order Value, which increases ROI on every customer engagement.
  2. Focus on reinvestment, increase spending, and convert more customers at the current rate.

Average Order Value Focus

In the example below is focused on the kind of performance targets that you’d set for a business if 

  • $60,000 MRR (20% increase in revenue)
  • $60 AOV (20% increase)
  • $12,000 (Maintain current ad spend)
  • The High-Level Breakdown:
    • 60k (MRR) / $60 (AOV) = 1000
    • $12,000 (ad spend) / 1000 (monthly orders) = $12 CPA
    • $60 AOV / $12 CPA = 5x ROAS

Ad Spend Scaling Focus

  • $60,000 MRR (20% increase in revenue)
  • $50 AOV (maintain current performance)
  • $14,400 (scaling ad spend by 20%)
  • The High Level Breakdown:
    • $60k (MRR) / $50 (AOV) = 1200
    • $14.4k (ad spend) / 1200 (monthly orders) = $12 CPA
    • $50 AOV / $12 CPA = 4.16x ROAS

Lead in copy into the option to focus on both

Average Order Value + Scaling Focus (Hybrid Model)

  • $60,000 MRR (20%+ increase in revenue)
  • $55 AOV (increase AOV by 10%)
  • $14,400 (scaling ad spend by 20%)
  • The Projection Breakdown:
    • $14,400 Ad Spend / $12 AVG CPA = $1200
    • 1200 monthly orders x $55 Average Order Value = $66000
    • $66,000 potential performance / $60,000 growth goal = 9.09% or a 29.09% increase in monthly income

There are many ways to use your campaign data and goals to ensure you have the right plan in place. In the example above, if we’re able to make just a few slight adjustments to our AOV and maintain performance as we scale our campaigns, we’ll outperform our internal goals. Even better, by making small adjustments to both levers, we greatly increase the likelihood of reaching the initial goal if the market changes.

Putting It All Together

Let’s take all of the metrics we’ve covered and run them through a calculator. Remember, the goal is to determine realistic projections for campaigns.

Example Metric Averages

  • Planned Monthly Budget = $25,030
  • Cost Per 1k Impressions = $14
  • Click-Through Rate = 2.54%
  • Website Conversion Rate (From Ads) = 4.43%
  • Average Cost Per Purchase = $16
  • Required Return On Ad Spend = 2x
  • Average Order Value = $35

Once we’ve received campaign data, we compare current performance to what we’d have if we could reach a goal metric — like seeing how much we’d increase sales by improving content quality that drives a higher CTR of 3.30% instead of 2.54%.

We use this calculator to project the performance of campaigns needed to reach our goals. For example, if our client’s looking to generate $600k from paid ads this year but doesn’t know the cost or projected profitability, using the calculator is a great place to start.

A visual representation

By using data from past campaign performance, we’re able to project our daily, monthly, and annual performance. While these numbers are never going to have 100% precision, they can help you determine if your goals are realistic.

So before you start a new campaign or try to meet an unchecked annual performance goal, be sure to create projections first using historical data. This will give you the clarity and confidence needed to make intelligent business decisions.

Try the calculator tool.

How to Scale Winning Paid Ads Campaigns

Imagine

You’ve been running ad campaigns for your brand for a couple of weeks to test for winning variations: and you’ve found them. Now it’s time to scale — to take your winning campaigns and push them to more people for a greater return. 

But how do you get there? Do you simply add more spend to the budget? Turn off non-performing variations?

What’s our winning process?

Historically, we’ve struggled with this answer. After a lot of trial and error and learning from the best consultants in the media buying space, we’ve developed a framework that helps our partners grow with paid ads.

Before we start scaling, we run our ad sets for 3-5 days for accurate average results — Facebook tends to show better results in the first few days of running ads. While it’s good to see ads converting, don’t let this fool you! This is often where scaling begins and ends for brands; they see initial growth, then watch their campaigns slowly decline or stagnate.

We follow this process:

  1. Increase the ad budget for the Top Of Funnel / Cold Traffic campaign by 20-30% — some suggest as much as 50%, but we wouldn’t go so far. This provides a baseline of data and the highest likelihood of consistent performance during initial growth stages.
  2. After 2-4 days at the new ad spend with consistent results, duplicate the ad set, and push the budget 100% higher than the original.
  3. When implementing higher budgets, leverage manual bidding, and test multiple ad sets with 1x, 2x, 3x, and 4x the target CPA.
  4. Within the campaign, create an ad set with 5-10x the original budget.
  5. Because Facebook auction fluctuates daily, we need to determine what kind of manual bidding works best for our ad sets.
  6. Finally… Test, Test, Test. scaling a winning campaign involves a lot of trial and error! However, with the right mindset and the right team, it is possible.

Ad Budget Breakdown

We’ve tested numerous strategies when it comes to managing the ad spend for maximum results. Over the years we’ve found that splitting the ad spend using a 70/30 model where 70% of the ad spend is directed towards cold traffic and the other 30% is devoted towards re-targeting and engaging our existing audience.

Cold Traffic / Top Of Funnel: 70% Of Ad Spend

Middle Of Funnel: 15 – 20% of Ad Spend

Bottom Of Funnel: 10% – 15% Of Ad Spend

Taking some time to outline a detailed strategy that can maximize your scaling potential is essential when setting up these campaigns. Make an effort to develop a thoughtful strategy rooted in specific goals. This will make your efforts focused, efficient, and set for success.

How To Choose Audiences For Top Of Funnel

Cold traffic audiences are, without a doubt, the most difficult audiences to profitably convert with paid advertising. However, they’re usually the most important audiences you run ads to, even if your bottom of funnel audiences provide you with the greatest returns. If you’re not bringing new people into your funnel and building your pipeline, then your pool of potential customers at the bottom of the funnel will have diminishing returns.

We spend a lot of time building COLD traffic (i.e. Top of Funnel campaigns). Our Top of Funnel (TOF) campaigns usually spend 65-70% of the total budget on most accounts we manage.

Because so much ad spend is directed to cold traffic, it’s essential to choose the right audiences for your TOF campaigns.

Traffic quality is vital to your ad account’s overall performance. Since this traffic feeds into the Middle Of Funnel (MOF) and Bottom Of Funnel (BOF) campaigns, having the right audiences at the top will give your account the opportunity to perform well.


Tired Your Campaigns Being Unprofitable?

Learn the method we’ve used to help profitably grow and scale e-commerce brands to 6-7 figures online with paid advertising. Save time, money, and countless hours testing by following our scaling method.


To set up your top of funnel, evaluate your options and separate the available assets into 4 main categories:

1. Lookalike audiences (LLA) based on Custom Lists.

Custom Lists are not new. If your Facebook Pixel did not capture purchases, upload a CSV and create a lookalike audience.

PRO TIP: Export your customer list from your ecommerce platform (Shopify, BigCommerce, WooCommerce, etc.) and separate your customer data based on the amount of purchases they’ve made. Our favorite starting point is to segment people that have made only one purchase vs the people that have made 2+. We then take this data and upload the lists separately, then our final upload is both of those customer lists combined. This provides three solid audiences for testing and creating Lookalike Audiences from 1%-6%. Make sure not to remove the order value from the list so you can upload the Custom List with Life Time Value included.

Customer List #1 = People that have made only 1 purchase

Customer List #2 = People that have made more than 1 purchase

Customer List #3 = Everyone that has made a purchase

2. Lookalike audiences based on pixel events.

There are countless options and variations when creating lookalike audiences based on pixel events. The most common and available pixel events in ecommerce are PageView, ViewContent, Add to Cart, Initiate Checkout, Added Payment details, and Purchases. Before creating custom audiences based on these events, you’ll always want to check Events Manager for the total number of events fired on your website for each event. These numbers can help predict the potential audience size and whether to use them as lookalikes or not.

Regardless of the total number of events, we recommend creating custom audiences for 3 / 7 / 15 / 30 / 60 / 90 / 180 days. Even if you cannot use them as a source audience for lookalikes, they will come in handy for retargeting later on.

If the number of events on your website is significant or the site has several products or landing pages, it will allow you to create more advanced custom audiences, providing more valuable lookalike audiences. We aim for the custom audience size to be at least 500 (preferably 1000) to create a solid lookalike audience. 

Here are some of our favorite LLA combinations:

  • PageView Last 30 Days Frequency > 4
  • Site Visitor Top 5% Last 90 Days
  • Top 25% Most Engaged By Time On Site
  • Any specific product / category / pixel event –> View Content_url include: Product last 60 days
  • You can also exclude purchase value under a certain amount

PRO TIP: To do an advanced search or crosscheck the potential custom audience size, you can use Facebook Analytics. It will immediately show you the audience number, and you can adjust variables more easily than creating each custom audience in the Audiences tab. If you find a great combination, you can save the filter and build the audience right away.

3. Lookalike audiences based on Engagement.

This category could be called “lookalikes based on MOF audiences”. The source audience, in this case, is from custom audiences based on Facebook Page or Instagram account engagement.

Here are a few examples:

  • FB messages sent in the past 365 days –> LLA for a client where most of their orders came through Messenger
  • FB post engagement in the past 180 days
  • FB video watch time 50%+ last 90 days
  • IG saved post in the past 180 days
  • Facebook Page visitors in the past 60 days
  • FB all Engagement in the past 365 days

Note: We believe you should only use video viewers as a source audience for lookalikes if there is no other option available. The source audience that viewed your ad videos aren’t necessarily valuable customers. Creating a lookalike from these users might not provide much value — unless your objective is to find more engaging video viewers. 

There is, however, one scenario when video viewers can be valuable as a source audience: when you have organic converting traffic with long video viewing times from watching live videos or other content on your Facebook page — such as educational, how-to videos that are connected to your products or services.

4. Interest-based audiences

Even though we think we have a better success rate when starting with lookalike audiences for TOF campaigns, we also see success with interest-based audiences — especially when the product or brand has a precise market segmentation or personas. Aside from the product or niche interest groups, our usual process is to check the Audience Insights tab to find other things page visitors are interested in.

PRO TIP: When creating these audiences, our go-to process is to combine broad audiences with interests. We leave demographic attributes open and select 1-1 main interest only, which usually results in a massive 5M+ audience. 

Example: We target people in the USA with an interest in Crossfit, excluding our website visitors in the last 180 days.

Once you’ve analyzed the four categories above, choose 5-8 audiences you believe are the most valuable for a splash of fresh traffic. There are a couple of things you should keep in mind when creating a TOF campaign with Campaign Budget Optimization (CBO) and choosing audiences:

If the audience sizes between ad sets vary significantly — for instance, one audience has an audience size of 70k and another with 10m — then the algorithms will likely push traffic to the ad set with a bigger audience.

If you choose LLAs based on the same sale funnel events each time, you’ll more than likely find that they overlap. This overlap limits the algorithm’s ability to test fresh traffic and find you more conversions.

Let’s say you create a 1% LLA based on:

  • Add to Cart last 180 days
  • Initiate Checkout last 180 days 
  • Purchase last 180 days 

On paper, these all look like valuable lookalikes — and they are, to a point. However, when you want to give the best chance for a TOF Campaign Budget Optimization (CBO) campaign, you might want to mix up your audience and try new directions.

1% lookalikes are a solid go-to and will likely be more valuable than 2% or 5%. But we’d still recommend testing different percentages on the same source audience, as they might give you surprising results. 

Before you expand to broader percentages, we recommend that the first TOF campaigns only use a 1% audience.

Scaling your brand online is a challenging task, but you can make the path to growth easier by following strategies to affordably reach new customers. By implementing the processes we’ve outlined for finding and targeting cold traffic audiences on Facebook and Instagram, you’ll put yourself well ahead of your competitors.


Tired Of Unprofitable Campaigns?

Learn the method we’ve used to help profitably grow and scale e-commerce brands to 6-7 figures online with paid advertising. Save time, money, and countless hours testing by following our scaling method.


Fool-Proof Checklist For Paid Ads Success

To successfully run your paid ads campaigns it takes more than the knowledge of how to put everything into the ad platform you’re using.

In fact, that’s the easiest part of running ads!

Once you’re Google or Facebook ad campaigns are up and running its vital that you have a good process in place for managing and optimizing your ads consistently.

To help, we decided to outline the key points of optimization and when to review them. Below is a graphic that you can use a guide for optimizing your campaigns.

We recommend bookmarking the page so you can access it easily in the future!

Need help scaling your ad campaigns?