Now that we've learned how to choose the campaign objective that is aligned with your business goals, let's talk about budgets. And by the end of this video, you will know how to determine the right budget for your ad campaign. You campaign budget is the total amount you plan to spend over the course of your ad campaign. Sometimes you might run an ad campaign for a long period of time. And then it's usually easier to express your campaign budget as the amount you plan to spend per day or per month the campaign is live. In some cases, your campaign budget might already be decided by another party. For example, if you work in a marketing team in a company that allocates a certain monthly amount to social media ad campaigns, well, that will determine your overall campaign budget. If you want different campaigns in a given month, you would breakdown that budget into a budget per individual campaign. Or if you work for an agency, your client might budget a certain amount of money for the campaign you're managing. In that case, it's your job to get as many results as possible while not going over budget. And these results might be app downloads, item purchases or newsletter signups. Your client might also provide you with a limit on how much each result can cost. In other cases, you might determine the campaign budget yourself or you might be asked to recommend a campaign budget to a client. So how much did you spend then? Well, your campaign budget ultimately will depend on what results you're aiming to achieve, and your realistic estimate of how well your ads will drive sales or conversions. And we'll talk about how to determine each of those things in this video. Let's use an example company to walk through how to determine a campaign budget. We'll start with an online bike parts retailer who's aiming to achieve the result of $50,000 in revenue per month. Let's say you run this company. You know that for every 100 people that land on your website, 1 person becomes a buyer and buys $200 bike tires. This means every buyer generates $200 in revenue. You want to make $50,000 in revenue per month, that means you will need 250 buyers. To now calculate the number of website visitors you will need, multiply the 250 buyers with the number of visitors needed to get a buyer. 250 buyers × 100 = 25,000. So your ads will need to get 25,000 website visitors per month to achieve your revenue goal. So how much money can you spend on advertising to get those 25,000 website visitors? Well, to calculate that we need to compare revenue and our actual profits. Let's say the set of two bike tires that you're selling costs $80 to make and 20$ to sell. This means that although your revenues is $200, your profit is $100 because you're only making $100 per sale in profit. And this means that you don't want to spend more than $100 in advertising per sale, when you spend more than your profit, then that means you lose money. So if you make $50,000 in revenue, you're going to make $25,000 in profit. And this means, you shouldn't spend more than $25000 on advertising. Every dollar you spend less than those $25,000, is now your actual profit after reflecting your advertising costs. So it's good to remember to never spend more in advertising than the profit you make. Here's another general guideline that's good to know, the rule of thirds. And many businesses use this rule of thumb to decide on how much to spend on ads to keep their business growing. This rule says to spend no more than 1/3 of your expected revenue on advertising. So with that in mind, if you want to see 50,000 in revenue, you shouldn't spend more than 1/3 of that or about $16,600 on advertising. Now we need to calculate how much we can pay per website visitor. Well, you're going to need 25,000 website visitors to make $50,000 in revenue. You also know you don't want to spend more than about $16,600 on advertising. You may not be planning on spending all your advertising dollars on one platform though. But is spending $16,600 enough to get us 25,000 website visitors? Well, to figure that out we need to test our ad campaign. So how do you test your campaign? Well, before you put in your full budget on day one, we recommend starting with a smaller test budget and monitoring your campaign very closely. Get an idea of how much impressions or clicks cost and how well they convert into results. And with that data in hand, you can then calculate how much you can spend to reach your objectives. In the next video, we'll have a look at how to set your campaign budget in Facebook Ads manager.
