While there is no doubt how effective advertising on Facebook is for businesses, understanding their different pricing models can get a little confusing. With thechanges Facebook made in January, 2015, to reach a wider audience businesses will need to dig into their pockets.
The aim of this guide is to remove any confusion users have relating to advertising costs on Facebook. At the end of it you will know:
1. How much it costs to advertise on Facebook
2. The different pricing models offered by Facebook
3. Which pricing model is best for your business
4. How to measure Facebook advertising ROI
5. How to reduce your Facebook advertising costs with keeping ROI high
How much does it cost to advertise on Facebook?
Well that depends on your competition.
If there are several businesses who are marketing to your target demographic, you will need to outbid them in order for your ads to be viewed. Facebook advertising works on an auction based model, businesses who pay the most get their ads in the limelight.
On the other hand, if your business operates in a niche that receives little competition you will get away with paying less for advertising on Facebook. Even in the most competitive of industries you will generally pay less using Facebook Ads than most other online mediums.
To give you an idea of how cheap it is to advertise on Facebook over all other mediums, check this:
Just because Facebook advertising is cheap doesn’t make it any less effective. Check out how several major Australian brands use Facebook to generate leads and drive sales by Facebook marketing.
Setting up your Facebook budget
Before you run any Facebook campaign you will need to set a per day or lifetime budget. Per day budget is how much you’re willing to spend per day advertising, once the amount has been reached your ad is stopped until the following day.
Lifetime budget is the total amount you’re willing to spend and once the budget is reached your ad will stop being shown. both options allow you to have a start date and end date, perfect for advertising that promote events, offers or sales.
The budget option ensures businesses are in total control of their Facebook advertising costs.
Setting your maximum bid per action or impressions
Advertising on Facebook comes with many features, one of them being the maximum amount you wish to pay per action (like, comment, share etc,) or per 1,000 impressions. Facebook will never charge you more than your maximum bid.
Facebook Ads have amazing audience targeting options that allow you to target people within specific postcodes or based on their interests and behaviour. The more in-depth your targeting is, the higher your Facebook adcosts will be.
However, the greater the targeting the better the results.
If you’re confused on how much to set your maximum bid, Facebook offers a ‘suggested bid’ for every advert you create. Facebook’s suggested bid is what they think will yield you the greatest ROI.
Tip: Setting your maximum very low may seem like a smart idea but doesn’t work in practice. Ads that are priced too low will never be shown as they will be constantly outbid by more competitively priced adverts.
All you will be doing is wasting your time and effort. Aim to bid competitively and as you gain more experience you will have a better idea of how to structure your bids.
The different Facebook pricing models
Facebook offers three core pricing models, they are:
• Cost per click (CPC)
• Cost per thousand impressions/mille (CPM)
• Optimised cost per mille (oCPM)
Cost per click works very much like the name suggests, each time a user clicks an ad you’re charged. A click can be anything from viewing a picture, pressing a call-to-action or leaving a comment. Basically any sort of interaction with the ad.
CPC allows you to set the maximum price you’re willing to pay per action.
Cost per thousand impressions is based on how much you’re willing to pay for 1,000 impressions of your ad. An impression is anytime you ad appears on a user’s newsfeed, right side column or mobile device.
A user does not have to click on your ad to be charged, it only needs to be shown.
Tip: Keep in mind that 1,000 impressions doesn’t mean 1,000 unique impressions. You must set your advert to optimise for daily unique reach to ensure it’s 1,000 unique impressions per day.
CPM allows you to set the maximum price you’re willing to pay per every 1,000 impressions.
Optimised cost per thousand mille differs from CPC and CPM in that you don’t control the amount you spend. Instead, Facebook uses their clever algorithm to price your bids as competitive as possible to ensure your ads get viewed by users who are most interested.
While oCPM doesn’t allow you to set a bid per 1,000 impressions or clicks, you do have the option to set an overall budget which stops the ads when it has been reached.
oCPM can be used to help increase actions, reach, clicks and social impressions. Usually the most expensive option when advertising on Facebook.
Which Facebook pricing model is best for your business?
The best Facebook pricing model is the one which provides the greatest ROI. There are two types of ROI that need to be measured, they are:
1. Financial ROI – used to calculate the revenue made from a particular campaign
2. Social ROI – used to calculate the amount of social engagement from a particular campaign
Both of these need to be measured to figure out which pricing model provides the lowest Facebook advertising costs while bringing the greatest ROI.
Financial ROI is pretty easy to calculate using the image below:
Social ROI isn’t as easy at that. While likes, comments and shares are easy to quantify usingFacebook Insights, customer perception and the effect on brand positioning and placement are variables that are much more difficult to gauge without the help of social media experts.
Social ROI is used when the objective is to increase social engagement rather than driving sales.
When to use oCPM
Jon Loomer ran a Facebook experiment between CPM and oCPM to find out which pricing model provided the greatest ROI and lowest Facebook advertising cost. Here are the results:
To give you a simplified breakdown, oCPM yielded greater engagement by more than 300%, each click was $0.01 cheaper but the total spent using oCPM was 3x more than CPM.
oCPM was a lot more successful and provided a higher ROI. However the costs of using oCPM were a lot higher than CPM.
Remember that oCPM is an optimised pricing model and shows ads to people who are more likely to engage and uses a dynamic bidding model.
As you can see from the results it did an awesome job.
So what does this all mean for you? If you’re not on a small budget and your main goal is to increase engagement, gain leads or drive sales then oCPM is certainly the way to go.
In the experiment, the advertising budget was reached each day using oCPM whereas CPM didn’t even come close. Your Facebook advertising costs will be higher using oCPM but the ROI will most likely be better which is all that really matters.
oCPM is commonly used by novice Facebook advertisers as it will reduce the amount of mistakes they can make. Businesses who have very little idea on how Facebook Ads work can quickly find themselves out of pocket with a very bad ROI using CPM or CPC.
In a nutshell: Perfect for businesses with bigger budgets who want results and for those with little social media marketing experience.
When to use CPM
Creating a Facebook campaign that is compelling, well targeted and is run by social media marketers who know what they are doing can keep Facebook advertising costs low while bringing an impressive ROI using CPM.
In order to gain better results than oCPM your social media expert needs to be just that – an expert. Experts who know which type of copies your audience best respond to, understand their needs along with colour, text and image psychology can bring a much greater ROI than oCPM.
Tip: When promoting Facebook content only to followers who liked your page, CPM usually offers the greatest ROI. This option can be found in the audience setting on the Facebook Ad Manager.
In a nutshell: Ideal for social media experts who understand their market, can create compelling copies or want to be in full control of their Facebook advertising costs.
When to use CPC
One of the benefits that CPC has over CPM and oCPM is that you’re only charged when someone clicks on your ads. In theory you can gain thousands of impressions without actually spending a cent - free branding.
Choosing CPC helps you control your Facebook advertising costs because before you even start a campaign you will know your ROI.
For example, if you setup a Facebook campaign to gain likes and set the CPC to $0.50 with a $200 budget, at the end of your campaign the maximum you will pay is $0.50 per click.
When using CPC you set the maximum amount you’re willing to pay, often you will be charged less than what you set.
Facebook CPC pricing model is one of the cheapest CPC models online.Social Fresh conducted a study that showed Facebook’s CPC model was on average 45% cheaper than other online ad platforms that use the same pricing model.
In a nutshell: Best for businesses who want to know their ROI before hand or want total control of their Facebook advertising costs.
Did you know high converting ads reduce your Facebook advertising costs?
Well it’s true.
Facebook measures each ad’s relevance score to determine how appropriate your ad is to followers. The greater engagement your ads receive the cheaper your costs will be.
“Put simply, the higher an ad’s relevance score is, the less it will cost to be delivered. This is because our ad delivery system is designed to show the right content to the right people, and a high relevance score is seen by the system as a positive signal.”
Crafting engaging copies, using the right voice, embedding high-quality pictures and targeting the right demographic can all have a positive effectives on reducing your Facebook ad costs.
You can find the relevance score of each ad by visiting the Facebook Ad Manager and clicking on a particular ad.
Businesses who want full control over their Facebook advertising costs should favour CPC or CPM over oCPM as they both provide greater flexibility, but without social media experience you may not get the best ROI.
Less experienced businesses should start with oCPM and as you begin to pick things up we suggest trying out CPC or CPM and monitor the results. The right option for your business varies on a number of factors including budget size, ad objectives, how well you know your audience and social media experience to name just a few.
The cost of advertising on Facebook compared to alternative platforms is almost unmatchable. Businesses should realise that with the use of a social media expert they can increase their online presence, generate a constant supply of leads and drive sales using Facebook ads without spending too much.
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