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Hey there, it's Jason Hornung from JH Media!
In the video above and blog below, you're gonna discover how to launch successful Facebook ad campaigns on a small budget.
Now, the reason this is really important for you is kind of two fold. First off, there's a lot of misinformation out there about what constitutes a small budget. I'm gonna give you some extreme clarity on that.
Two, what I'm also going to show you how you can actually run your numbers before you ever launch an ad so you know what your key performance indicators need to be. As a result, you'll be able to spend the minimum amount of money that you need to spend to get proof of concept and figure out what works and doesn't work.
Let's go ahead and get right into it!
Two Types of Business Models:
Right now there's actually two different types of business models when we break things down to the most simplest form online. What I'm gonna do is I'm gonna kind of break these things down and then I'm going to show you how you can get to know your numbers because knowing your numbers is the most important thing to determining what the smallest budget that you can use is.
You see because a small budget is very subjective, somebody might consider $10 to be a small budget period, other people might consider $10,000 to be a small budget, but your actual budget, the smallest budget that you can use is gonna be driven by your business model and what your objectives are for your return on investment. That's what I'm gonna help you figure out here.
The Lead Generation Model:
The first business model I show you in the video is the a lead gen model and this is actually a model that one of our clients is using specifically right now.
What we do is we actually drive ad traffic to an opt in page where people are registering for a webinar.
When they register for this webinar, we send them to a thank you page to deliver some extra stuff, and confirm their time.
Then they get on the webinar, if they so choose they can click over to our sales page when we make the offer on the webinar, and if they buy then they go to a thank you page where we give them access to the product that they purchased.
Direct To Sale Model:
The next model is a direct to sale model. We're using this particular model for one of our eComm clients, they have a product that is a tooth whitening product.
We actually run ad traffic straight to the product page, if somebody decides they want to buy, they click the button, go to the cart, and then when they purchase they go to the thank you page.
Now how do we know what our numbers need to be?
Well that's gonna be largely driven by the product. This particular product that we're selling here is a $2,000 price point other products starts at $25.
Testing the Lead Generation Model:
When doing a lead generation model, there are a lot of factors going on here so we have to test them at different stages and have different budgets for different portions of the campaign.
In the initial campaign, if we're just launching this thing, we've never tested anything at all, what we're going to be doing is optimizing based off of our cost per lead and we're gonna be trying to get leads within a number that will allows us to make profitable sales assuming that everything coverts throughout the marketing funnel.
How do we know what that number needs to be?
Well, we start by looking at the product price point and what kind of return on investment that you want to get on that product day one of your marketing funnel.
Day One ROAS
In the industry we call that our day one ROAS or return on ad sped.
Most people that we're working with (and these are smart business owners), they want a two to one return on ad spend day one. (and I already hear some of you now “Oh that's nothing, I want six to one or nine to one”) but that's not really feasible in most businesses day one. Right?
Smart business owners know that if they can get a customer and they can be profitable on the front end over their ad spend, fees to run the ads, cogs, whatever expenses are in their business… if you can get to that profitability day, they know and they re-market to their customers and they sell their products over and over and over again or they sell other products to them and then you can end up popping that ROI to seven to one.
We've seen stuff as high as 16 to one and plus!
Now, that doesn't normally happen on the front end and the people that are trying to get that on the front end are deluding themselves and they're not really building a good business.
Cost Per Acquistion
Assuming we're looking to get to this two to one day one ROAS, then if our product price is at $2,000 then what that means is we need to spend less than $1,000 to get a customer. We call that metric our CPA, or our cost per acquisition. In other words, how much do we pay in ad money to get a customer?
If we spend $1,000 on our ads and our product is $2,000 price point than we get that two to one return, it's very simple we just take our product price point and divide it by two, and that's how we can figure out what our CPA needs to be.
Now to figure out this CPL, cost per lead, that we need to be optimizing on in the beginning, we have to back in to some of those numbers. This is gonna take a little bit of some third grade math wizardry and understanding of some basic metrics throughout these marketing funnels.
The first thing that we look at is typically these sales pages convert one percent of our leads into buyers. That's one metric that's gonna allow you to kind of back in to these and these opt in pages typically convert at 20%- meaning 20% ad clicks will become a lead, so they're gonna opt in.
If we know that now what we can do is we can start to figure out the rest. What I like to do is just use big numbers to make the math easy.
Lead Gen Model By The Numbers:
Let's say we want to get 100 sales.
If we want to figure out how many leads do we need to get to generate these 100 sales we take that 100 and we divide it by .01 which is 1%.
Which means, we need 10,000 leads.. If we need 10,000 leads and we want to keep this within our numbers these 100 sales we can't spend more than $1,000 on each of those sales.
Now I realize this is big numbers here, but this is just to make the math easy.
I'm not suggesting you're needing to spend $100,000 on your ads right away.
If we're gonna spend $1,000 per customer in this model and we want 100 sales, we have to spend $100,000 on those ads.
So, we need 10,000 leads out of that $100,000, we just take 100,000 divide it by 10,000 and that tells us that we can pay up to $10 per lead.
If we get those leads for $10 and one percent of them convert into customers, then we're going to get our 2:1 return.
We'll get our sales at $1,000, we make $2,000, we get out 2:1 return.
That's kind of how you can back into the numbers in a lead generation model and this gives us our initial metric that we're going to be optimizing out campaign towards, and it's going tell us what budget now we can use in testing our ads.
Now if your budget doesn't allow this, you can do as little as you want.
You could literally just do five dollars per day and you could have one ad spending five dollars per day. You'll get very little data, you're only gonna be able to test one audience at a time, and it'll take you a longer period of time to figure things out but you can definitely do this.
Testing Your Audience:
Now what you want to do though is for each audience that you're testing you're gonna want to spend one 1-2 times your cost per lead to test that particular audience. That's how you can determine whether it's going to give you $10 leads or not.
If you only spend five bucks on this audience and you don't get a lead how do you know if you're gonna get a lead within $10? You have to spend at least $10 on each audience on this particular model if your metrics work out that way.
Do you see how your business model, your price points, and everything that's gonna effect your budget that you need to spend to figure things out?
Now, that's just on the front end trying to figure out if you can get leads within your numbers.
Once you find audiences that are giving you leads within your numbers then you start to scale those things up, and you have to keep letting them flow through to see if you can get sales within $1,000 or not.
Testing The Direct To Sale Model:
In this particular model, you have to let each creative run for $1,000 in spend in order to determine whether that ads is gonna give you profitable sales or not or if it's going to give you sales within the numbers that you're looking for or not.
Direct To Sale Model By The Numbers:
In the lead generation model, you know because it's a $2,000 price point the minimum budget that we have to spend is $1,000 to determine if any one ad is going to work profitably for us or not.
Now, we apply the same logic down into a direct to sale model. Now in this model because we're using something in the eComm industry, the price points are a lot smaller, and it's a little bit more straightforward so you can test with smaller budgets.
In the video example, the product price point is $25 but they actually have some upsells, bumps, etc. in so they're willing to spend $30 in cost per acquisition.
If we're gonna drive this ad traffic straight to the product page, these product pages will typically convert between 3 – 7 percent of our traffic, these clicks that we send over here, 3 – 7 percent of them are going to buy.
Let's use the same logic here or the same math, if we want to generate 100 sales, and let's say we're at that lower end of the spectrum right there. We need to take that 100 and divide that by .03, and that's going tell us that we need 30,000 people to visit this page because now we're sending ads right here (direct to sale, not lead generation), we need 30,000 clicks to this page to generate those 100 sales.
If we're trying to keep that within a $30 CPA, then we cannot spend more than $3,000 to get those 30,000 clicks.
If we take 30,000 divided by 3,000, that's 10 cents a click, but that tells us that we need to get our ad clicks for 10 cents, and if we can get out 10 cent clicks and this page converts 3 percent of those clicks into sales then we're gonna get our sales at our $30 CPA that we're looking for and this actually gives our customer a 2:1 return day one ROAS.
Testing Those Ads:
You can see in this example because we're driving this traffic here, what we want to do is we want to spend $30 on any ad that we're testing.
We have to spend $30 on each ad to determine whether it's gonna produce a sale at $30 for us or not.
If we spend anything less than that we don't really know if that's gonna work. In the direct to sale model each ad needs at least $30 that we task to determine whether it's going to work
As you can see, what constitutes a small budget is really gonna be determined by your business model, the metrics that you're trying to achieve within that business model, and then of course your different conversion rates, etc..
All of these factors will determine your budget and if you go ahead and run those numbers beforehand you can actually figure those things out and figure out what a small budget is for you.
I look forward to seeing your success.
This is Jason Hornung, to the victor belong the spoils.
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