Smartly.io: How to Allocate Budget Between Funnel Steps on Facebook

Securing marketing budget is a feat, but making sure it’s spent effectively is another beast in itself. Optimal budget allocation between funnel steps is a real challenge all Facebook marketers face and one that can have a significant impact on ROI. So how do we tame the beast?

We recently touched upon the topic of incrementality as the only true measure of advertising effectiveness, where maximizing long-term incrementality should be the guiding factor when making budget allocation decisions between channels and funnel steps. We can limit our focus in two ways — through the direct response impact of advertising (leaving branding out of the question) and three most typical funnel steps:

• Traffic: Optimizing for upper funnel goals, such as Link Clicks or ViewContent

• Prospecting: Optimizing for the final conversion, such as Purchase or Subscription for Prospecting audiences

• Retargeting: Optimizing for the final conversion for users that have recently expressed intent

Many advertisers have separate campaigns for re-engagement and mid-funnel activities, but we will focus on the above since the principles are similar for the rest.

Advertisers should equip themselves with the right tools to find the optimal split. Here are five strategies to consider:

1. Benchmarks from Industry Peers

The most obvious thing to do is to copy what industry peers are doing. When talking about Direct Response advertising only, it is typical for advertisers to allocate approximately:

• 10 – 30 % for Traffic,

• 40 – 80 % for Prospecting,

• 10 – 30 % for Retargeting.

These numbers vary significantly based on the below:

• Industry

• Spend level

• Retargeting audience size

• Goal-setting between conversions and website traffic

• Other branding campaign activity -  Since we are focusing purely on Direct Response advertising with the three funnel steps defined earlier, other branding campaigns running in parallel might reduce the need for traffic campaigns.

• Branding campaigns are often managed by a separate team.

This is a good starting point if no other benchmarks are available.

2. Capping Frequency for Retargeting

An easy way to set a cap for maximum retargeting spend is to cap frequency targets. There is no one-size-fits-all frequency as this varies across verticals and campaigns. This Facebook IQ article is a good starting point for understanding optimal frequencies.

As frequency increases, new impressions not only get more expensive but also less effective. Luckily, reasonable bids set a limit for frequency.

3. Understanding Incrementality by Funnel Step

Perhaps the most commonly used tool for optimized budget allocation is understanding incrementality separately by funnel steps through lift testing. Budget allocation decisions can then be made based on the relative incrementality of each funnel step.

However, there is a caveat:

• Short vs. Long-term impact: Lower funnel campaigns can usually drive conversions quickly from purchase intent, however dynamics change with upper funnel campaigns as it takes longer for users to convert.

The most common outcome of these tests is a shift in focus from retargeting to upper funnel campaigns. Retargeting campaigns tend to yield the best attributed results while upper funnel campaigns often perform better in terms of incrementality. Users in the retargeting audience have already expressed intent towards buying your product so they are more likely to convert in any case – whether they see your ad or not.

4. Data-Driven Attribution Models

Data-driven attribution models are an alternative way to understand the incrementality of individual funnel steps. They use observational methods as opposed to experimental methods such as lift tests. Both approaches have their pros and cons:

• Lift Tests are the most accurate methods, while they can only provide a snapshot – incrementality varies over time, by market and spend level.

• Observational methods are not as accurate, but they measure results continually and with a lower level of granularity.

5. Multi-Cell Lift Tests

Advertisers can also use Multi-Cell Lift Tests to test which split yields the best overall incrementality. For example, you could test the following options against each other:

• Option A: No Traffic campaigns, 70 % for Prospecting, 30 % for Retargeting

• Option B: 20 % for Traffic, 65 % for Prospecting, 15 % for Retargeting

Again, the duration of the test can have a significant impact on the result. A higher share of spend used for lower funnel campaigns can garner optimal results in the short term, but upper funnel campaigns might prove crucial in the long term. For best results, we recommend running such a test for as long as possible, ideally minimum two months. Also, the variance is high in lift test results, which is why we need a lot of data to get reliable estimates.

The strategy that works best for your marketing efforts varies by advertiser maturity, overall budget-level, as well as budgets available for testing. We recommend advertisers start with a sensible overall budget split, then understand lift by individual channels; and finally test options qualified through previous tests with long multi-cell lift tests.

Advertisers need to balance the trade offs accompanied with testing, with the added benefit. Note that the optimal budget allocation depends on the overall spend-level – if you double your budgets on Facebook, you need to re-iterate on the optimal budget split.

Read the original article here