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Can you afford Facebook ads? Let's do the math!

facebook ads Feb 18, 2020

Have you ever wondered how much you can afford to spend on your Facebook ads?

In this video, I walk you through each step of figuring out if you can afford to run Facebook ads. Get out your pencils! 

This chart gives you the Facebook ads calculations used in the video


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 Transcript:

Can You Afford Facebook ads?

Let’s figure out how much you can afford to pay for a lead, then how many of those typically turn into clients.

If you don’t already know these numbers, make your best guess until you can prove them, as every business is different and will never have the same sales cycle or costs associated with it.

Hi, I’m Sally Hendrick, your Nashville Tennessee gal who knows Facebook ads and sales funnels up, down, forwards, and backwards. I’m here to help you understand how to make money online.

Let’s start with an example that will show you how to calculate these figures.

In this chart, we are doing simple math, but it can get confusing if you aren’t familiar with the terms.

Let’s assume you have spent $2,000 in Facebook ads and got 200 leads from them into your sales funnel. That’s a cost per lead of $10. Take your $2,000 ad spend divided by the 200 leads to get the cost per lead, or CPL as we like to call it.

Then let’s assume you get 5 new clients from these 200 leads. That is a conversion rate of 2.5%, meaning that 5 out of 200 people actually purchase something from you.

Next you have to figure out what the lifetime value of a client is for your business. Now this can get more complicated because sometimes our clients will buy multiple things from us over time. Others may only buy from us once, and prices of our offers can vary.

So let’s take a bird’s eye view.

If you have the data to evaluate this and have been making consistent sales in your business, then take your gross income divided by the number of clients you have. That can represent the lifetime value of a client. If you are just starting out, this is harder to calculate for the long term, so maybe you just want to focus on your current offer. Let’s assume that has a price tag of $3,000 per client.

So back to the math. If you can expect $3,000 in income per client on average, and you get 5 new clients, that’s a gross income of $15,000.

So how does this relate to knowing if you can afford Facebook ads?

You must convert this lifetime value per CLIENT into the lifetime value per LEAD.
Take the lifetime value per client of $3,000 and multiply by your conversion rate of 2.5%. That gets you $75 as the lifetime value of a lead into your business.

Now you can compare your lead value to your lead cost. If your lead is worth $75 to your business, but you only spent $10 to get it, you have $65 leftover per lead to run your business, pay yourself, and make a profit.

Take $65 x 200 leads to get $13,000 leftover after ad spend. Is $13,000 enough to cover your operating costs until you get more leads coming in? Let’s just say you bring in 200 new leads every quarter. Will the $13,000 remaining cover your operating costs for the quarter? That is the real question.

What is the maximum that YOU can pay for a lead?

If you need help figuring out these pesky numbers, I love math, so just reach out to me by visiting socialmediatrafficschool.com, and click on the chat bubble in the bottom right corner.

Have a great day!

 

Sally Hendrick has been dotting i's and crossing t's for quite some time in the analytical space of digital marketing. She's here to help you move past the overwhelm with marketing and advertising your digital offers.

Go ahead and grab her free Facebook Ads Campaign Planner. Watch the on-demand dollar-a-day ads training while there!

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