Facebook Ads: How to set a budget for each ad set

Do you create multiple ads and get frustrated when some of your ads don’t run? Are you annoyed to see that Facebook serves inactive and costly ads to your target audience, while some of the ads you created are not served at all?

There is a simple science behind it, but let me assure you that this is a common problem Facebook advertisers experience. You can avoid it by running only one ad at a time but there are some details you need to take care of, and that is a topic for another day.

So what is the science behind ads that are not running although they are active?


Why your Facebook Ads don’t run

I ran more than 500 ads in the last 3 months for multiple clients. I used to create many ads for each client based on how many different yet relevant creatives we could produce. Needless to say, I experienced the same problem - some ads just don’t run.

So I dug deep to find out what happened. I also conducted a research online. Surprisingly, the reason turned out to be simple - I did not set aside enough money for all the ads to run.


What you need to know about budgeting for Facebook ads

Facebook’s overhaul of the campaign structure first in February and then in September (two days ago) meant that advertisers like you and I are able to set budgets for different ad sets.

But most advertisers don’t realise that there is a simple math behind Facebook ad budgeting. In fact, ad set budgets are based on three things:

  1. Estimated CPM
  2. Estimated audience size
  3. Number of ads


1. Estimated CPM

Estimated CPM means the amount you expect to spend to reach 1,000 people among your target audience. CPM varies greatly by the definition of your target audience. I have seen custom audiences of existing customers cost as much as $11 and as little as $3.

If you have run ads for some time, you can find the estimated CPM of your target audience by looking at the last column of Ads Manager. Often, the larger the size of your custom audience, the lower the CPM.

But does that necessarily mean that the larger the size of your audience, the better? No. That brings me to my next point.

2. Estimated audience size

Beginning from 1 September 2014, advertisers will have to specify their target audience for each ad set. In other words, you can no longer target more than one specific group of people within an ad set.

This actually simplifies ad budgeting.

With only one target audience per ad set, your estimated audience size is fixed. Facebook provides you with this number when you select a target audience.

Because your audience size is fixed for all the ads within the same ad set, it is easy to calculate how much money you should set aside for each ad set. Before we get there, let me go through the last point.


3. Number of ads

So you have a fixed audience size per ad set and an estimated CPM, what else do you need? You need to decide how many ads you are running.

Most advertisers today grab a number out of thin air. Others create ad variants based on how many ideas they can come up with. There isn’t a “right” way to do it.

But let’s say that you create 5 ad variants within an ad set. Each of these variants have a different copy and/or image. Each ad has a potential audience size of 400,000 people.

This means that if you want to serve all 5 ad variants to these 400,000 people, you will need at least 2,000,000 impressions.

This is not all. We also know that Facebook does not only serve an ad once and as a result, the same person might see your ad more than once. Facebook currently doesn’t allow advertisers to set a limit to how many times an ad is served to the same person, although it should come soon. So for now, you’ll need to set an estimated frequency.

From my experience, an estimated frequency of 1.5 is enough if you’re going to run an ad set for only a month. So with an estimated frequency of 1.5, it means that you need to serve 3,000,000 impressions to reach all 400,000 people.

With an estimated CPM of $3 (a conservative estimate) and goal of 3,000,000 impressions, your minimum required ad set budget is $9,000.

Your key takeaway from this post

$9,000 sounds like an awful lot of money for you. But that is the math behind setting a budget for an ad set. If you’re spending a significantly less amount for an estimated audience size of 400,000 with multiple ad variants, it is little wonder why some of your ads don’t run.

But the main takeaway here is not just a basic understanding of why your ads don’t run, it is to help you arrive at a budget that you can expect all your ads to run.

Remember what you need:

  1. Estimated CPM
  2. Estimated audience size
  3. No. of ads you intend to run

If you’re not too concerned with how many ads you’re running, then you can plan your budget based on just one ad. Then you can change that ad when it doesn’t perform well after a significant number of impressions.

I hope this is helpful and do let me know if you have any other questions in the comments below.

Jason How

I help social media teams and small business owners eliminate Facebook ads and content that suck. Brands that I have worked with include household brands like Seoul Garden and International Volunteer Day, an initiative of the Ministry of Community, Culture, and Youth (MCCY). When I'm not busy with numbers, I can become a real glutton.