Understanding Cost of Facebook Ads

Facebook-annoncering

I come across this question several times how much money is the right investment in Facebook advertisements. Understanding cost of Facebook ads is as important as deciding on your budget for marketing in traditional media. But the fact of the matter is that the cost of Facebook ads is different for every single advertiser and changes every single day. Why is that so?

Because a certain Facebook user can come across a certain # of the story or adds. Lots of advertisers are trying to grab the attention of the same people at once and a lot of variables play a role that goes into the final cost of your ads.

Understanding 3 concepts will make your life easy

1-CPM

2-CTR

3-Conversion Rate

Let’s begin with

1-CPM

Let’s begin with understanding CPMs. CPM stands for Cost per thousand impressions An impression is the number of times your ad is shown. M in CPM represents Roman numeral for 1,000. Don’t confuse CPM with the reach though.

Reach is the number of people who see your ad however impressions is the number of times your ad is shown so it includes duplication so if one person sees your ad twice that means the reach would be one and the number of impressions would be two.

No matter what type of campaign you’re running. The CPM is the first variable that goes into driving your cost leading to how much you’re paying for Facebook ads,

The CPM is determined by 3 things:

  • The size of your audience
  • The number of other advertisers trying to reach the same audience at that point of time
  • Relevancy score / If your ad/content is engaging

Keep in mind that you can’t control nor do you know how many other advertisers are trying to reach the same audience as you but other two factors can be controlled as per your requirement. If you want lower CPMs, you usually need a higher relevancy score/better focused and engaging ad. Facebook favors highly engaging ads and as a gift gives them lower CPMs meaning a lower cost paid from your pocket. Another variable here you need to tweak is the size of your audience. Having a large audience size means your ad isn’t relevant. Smaller the audience size means that there aren’t enough people to serve your ad to or too much competition is out there.

2-CTR:

If you’re using the objective of marketing as increasing “traffic” or “conversions”, then understanding CTR is important. CTR is Click Through Rate, which is the percentage of times someone clicks on your ad compared to the number of times it was shown (impressions). Therefore CTR = Number of link clicks divided by impressions. The higher the CTR the lower the cost per click will be. Hence a lot of people like to pay for CTR.

3- Conversion Rate

Your conversion rate. This is super important when running conversion ads. Your conversion rate is equal to the percentage that takes the action you are optimizing for divided by the number of people who go to your website.

Don’t be overwhelmed. Facebook ads take the time to learn but one who takes out time can benefit and can be a big game changer for your business.

But remember you can always ask us if you need help.

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