For many of us just starting out with advertising on social media, there are a lot of unknowns. There are many conflicting stories about the success of social media advertising – on top of there being both tech and educational barriers to contend with.
But one of the big questions is: how much money will I spend? For small businesses, budgets are tight and they need to be even more strategic with their marketing. It can be stressful not knowing how much you might be forking out. However, there is a way to predict how much money you might be spending before you get started with advertising (and I’ve got a download for you to help you out with it, too!).
However, the process involves knowing a few factors about your goals and costs before you get started, but I’ll talk through them step-by-step.
The things you will need to be across are:

  • You need to know your site conversion goals
  • You need to know your site conversion rate
  • You need to know your average CPC

So let me explain what these things mean – and it’s going to feel a little bit like a trip down memory lane to a high-school maths, but I’ll try to channel the awesomest mathmetician I can think of…

What are site conversion goals?

Let’s start with breaking down what ‘site conversion goals are’. For this, let’s use a case study of a hypothetical example to explain this so we can get meaty with our details.
Let’s say that Wonder Woman is taking a break from saving the world and is looking for alternate revenue streams. As a savvy businesswoman, she’s set up an online shop and she’s selling off trophies from the evil villains she’s defeated. Swords. Capes. Plans for world domination. That kind of thing. As a small business, she needs $2000 to pay the bills that month – and if each trophy costs $500, she just needs to sell four trophies.
Her site conversion goals is simply “how many people does she need to buy her products?”. In this case, it’s four customers, each buying one trophy.
THE STORY SO FAR: 4 customers x $500 per trophy = $2000

What is my site conversion rate?

So Wonder Woman justs need to send four people to her site right? Unfortunately, this isn’t the case for our whip-weilding heroine.
In many cases, the number of people who convert to buy something on a website could easily be as little as 1%. When we talk about a conversion rate, we’re talking about how many people who visited your site, divided by the number who actually bought something.
There are always factors which can make this conversion rate figure higher or lower. This can be anything depending on how much of a fan that person is of your brand to begin with, your industry or even the colours on your site. (There are loads of blogs on how to increase your site conversion rate – but that’s not what today’s math lesson is about.)
Wonder Woman needs to sell four trophies. With just 1% of visitors buying on her website, this means she needs to send 400 visitors to her site to meet her goal of four conversions.
THE STORY SO FAR: To get 4 conversions, Wonder Woman needs to send 400 people to her site if she has a 1% conversion rate.
Your conversion rate might be higher that this, and if you’ve got your analytics set up, it’s pretty easy to calculate how many visit, divided by how many purchase.

What is my Facebook Ads conversion rate?

So where does Facebook Ads come into it? Because Wonder Woman creates an amazing ad on Facebook – but – wait for it – only 1% of people who see that ad will click through to her site.
That’s right – 1% of people will click on her Facebook ad and go to her site, then 1% of those will buy her products.
So, this means her ad needs to reach 40,000 people at least. So from here, we have an idea of what size of an audience we need to be serving our ads to. However, in this case, we’re not paying for how many people see our ads, we’re paying for how many click on our ads. This is just useful info in our back pocket for when we are running our ads.
THE STORY SO FAR: If 1% of people click on her ad, and she needs 400 site visitors, then she needs to serve her ad to al least 40,000 people.

What is CPC?

Cost Per Click is how much you actually pay for each person to click on your ad. There are different ways of charging with online advertising, but CPC (Cost Per Click) is a common one when driving traffic. This is commonly how you are charged if your objective is driving traffic to your site.

CPC “Cost Per Click” = You are charged on the amount of people who click on your ad.
CPM “Cost Per Thousand” (in Roman Numerals) = You are charged for the number of thousands of people who see your ad.
For other common terms, check out this guide.

How much do I pay per click?

CPC is literally the Cost Per Click. So if you pay $1 for a click, you’re paying $1 for a single person to visit your site. If you need 400 people to visit your site, you’re paying $400.
Similar to landing page conversions, there are loads of factors which could determine the Cost Per Click. Generally, for ads, if you have a high Cost Per Click it’s because few people are clicking on your ad. This could be due to a variety of reasons – it might be that your ad image or copy isn’t engaging your audience, or that you ad is targetted so broadly that the people really interested in your ad aren’t seeing it.
While I could say that $0.50c is an efficient cost per click, you could pay $1, or $17, or $100 – it depends on your industry. If you are a law firm and you get a new client for a CPC of $100, you’re laughing because they could earn you millions. But we can say that for many industries, around $1 is an expected starting point.
But let’s explore this idea of CPC for a minute just to understand it a little further because it can save you big bucks if it’s working in your favour.
For this case study, let’s say Wonder Woman is paying $1 CPC – so she is paying $400 for each of her 400 visitors.
But what happens she updates her image or copy, and suddenly people are more engaged with the ad? What if she is now paying $0.50c per click? Well, it means that she is paying only $200 to get those 400 clicks.
What about the next stage of refinement? What if Wonder Woman was a good little digital marketer and looked at her analytics and saw only a specific demographic are engaging with the ad, so she excluded the demographics who weren’t engaging with her ad? Then, if she is down to $0.20c cost per click, she can reach 400 people for just $80.
THE STORY SO FAR: If Wonder Woman has a CPC of $1, she will pay $400 for her traffic of 400 people. If she has a CPC of $0.20c, she will pay just $80 for 400 people.
So you can see why CPC is something to pay attention to – with a lower CPC, the same amount of people head to your site, but you pay less. And this is due to you being smart with your copy, images and targeting.

Optimising These Ads

The reality is that you can expect to pay at least $1 when you first start running ads. Over time, you can optimise your ads by looking at your data and serving your ads just to people or placements that are working for you, or test different copy and images to ensure you’re engaging people most effectively.
The majority of work with running ads doesn’t happen at the start of a campaign when you design an ad, but when you optimise your ads over weeks or months of testing – that how you get the cost down. Like a science experiment, you need to get a baseline to see where you start at, then test to get more efficient over time.
If you’ve already been running some ads, you can see the CPC you’ve been paying so far in your Facebook Ads reporting to get an idea of how you’ve been going so far. If you know where you’re at, you can then make a plan for how you can optimise your ads.

Let’s recap

If you know what your targets are in terms of how many people you want to buy something on your site, you can project how much you may need to spend on ads.

  • You need to know your site conversion goals: I want 4 people to buy my product on my site.
  • You need to know your site conversion rate: If 1% of people purchase on my site, I need to drive 400 people to my site.
  • You need to know your average CPC: Because each click will cost $1 then I need a budget of $400.

It’s also useful to have an idea of the size of the audience you should be aiming to send your ads to (even though this doesn’t affect the cost, just how many people you serve your ads to): I need to serve ads to 40000 people on Facebook based on 1 % clicking on my ad.

Want to work with Rachel?

Rachel Beaney is a writer and social media content specialist, helping businesses connect with their audiences.

She’s worked with local, national and global companies, in addition to not-for-profits and government bodies. She loves helping businesses tell their stories with creative and data-driven solutions.

She is based in Sydney, Australia.

Want to work together? Rachel would love to hear from you. Get in touch today.