Insights, strategy and trends.

How much does it cost to run ads on Facebook or Instagram? This is a question I get asked as frequently as 'how are you?' (maybe not entirely true, because that would be a bit sad). People often want to be given a number to put down on a piece of paper in order to be able to understand and compare the costs towards other channels. But it is not that simple and there's no way to tell how much you are going to pay. Of course there are loads of sources out there stating average CPC and CPM for Facebook Ads, but seriously, I don't want to even go there because it depends on different factors. My first answer is therefore - it depends. Let me explain why...

So, first of all let's get basic! Having a Business Manager and an Ad Account on Facebook is free. There is no minimum or maximum on how much you can spend on your ads, it all depends on your marketing budget. The exact cost that you'll pay for your ads comes down to the Facebook auction. To better understand what it costs to advertise on Facebook, you'll need to understand how the auction on Facebook works and the underlying factors which it depends on to keep your costs low (and ROAS high).

What is the Facebook Auction, and how does it work? Well, when you upload an ad to Facebook it automatically enters an auction. All ads on Facebook compete against each other in various ways, of course depending on target audience, and the system determines who the winner is.

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It's the ad that stands for the highest value in this auction and not the highest bid as you might think. It's actually not at all like a traditional auction where the highest bidder always win. BUT at the same time you can't just put up a seamless ad creative and think you'll win the auction. In the auction there are three main factors that Facebook uses to determine the winner:

Advertisers Bid + Estimated Action Rate + Ad Quality.

The winner is selected by highest total value of these three factors. So having one of these factors wont be enough - sorry.

So below I will explain the three factors and how they are measured.

Advertisers Bid:

The bid placed on the ad set level by an advertiser determine how much they are willing to spend for the action desired. The bid can be placed with different strategies. Read more about this a further down.

Estimated Action Rate

This is based on an estimation of the number of people who would take action or engage with the certain ad in question. With this said, please do not attempt to do clickbait or engagement bait in your ads. It doesn't sit well with the algos (and is nowadays punished by Facebook).

Ad Quality:  

This is based on the feedback from your ads, feedback such as viewing, interacting or hiding ads. It also can depend on the amount of text in the ad and the quality of ad copy. Same here, if engagement or clickbait is used, your ad would probably get a lower score. Also link destination that does not match up with your ad can have an affect on this score. Use relevant landing pages that resonate with your target audience. If Facebook notices that you keep posting lower quality ads, it will have an effect on your ad quality, for sure. Check the quality of your ad by tapping in to your Quality Ranking which is within ad relevance diagnostic.

This means that an ad that is relevant to the target audience and have a better estimated auction rate could win the auction even though the other ad had a higher bid. But if the two were estimated to have the same relevance to the target audience, the ad with the higher bid would of course win, since the total would be higher.

Ok, now let's touch briefly on bidding strategies and what to use. Well...again, it depends.

Automatic bidding or manual bidding? A good start is to use Lowest Cost which is an automatic bid. Facebook then will manage the bidding and it allows you to reach the lowest hanging fruits while spending your budget. Keep in mind, you have no control over your costs (except for what you have put as a daily/lifetime budget).

source: facebook

Say you want more control over your costs. There are; Cost Cap, Bid Cap and Target Cost. When do you want to use what? If you want to control your bid and maximize reach for that given cost, Target Cost is best when you want to have consistent costs. Cost Caps will help you get most volume for your money. Bid Cap - as the name states, is best for controlling bids in the auction. Here you need to spend more time manually controlling your bid. (Or, why not let an AI take care of it instead of your gut feeling? Seems a bit easier, huh?) You also need to keep in mind that your entire budget might not be spent since you have put restraints on Facebook. When you are using a maximum bid, Facebook will stop to deliver your ads if it predicts that the cost per result will be higher than your actual bid.

Read more about the different bid strategies here. Just remember, the more control - the more constraints.

Now that you hopefully have an idea on how the auction works I would like to touch upon some other factors that can affect the Facebook ad pricing apart from the bidding and creatives:

  • Time of year: During holidays, Black Friday and other major events, the costs rise due to heavy competition on the platform.
  • Target audience: Depending on what your target audience looks like it might be more expensive to show them your ad depending on what age, gender group etc. they are in. Also, to retarget people who have already shown interest in your product or service might be cheaper than to target a cold audience with no prior knowledge. Make sure to separate your retargeting audiences from your prospecting.
  • Placements: When setting up your Ad Set targeting you get the option to select automated placements or to to be specific in what placements your ads would show up in. Automatic placements allows Facebook to select placements which performs best for your ad over time.
  • Campaign Objective: Make sure to select the right marketing objective for your campaign and evaluate your campaign after that given metric.

Summary; the highest bid doesn't always win. Make sure to have great creatives that are relevant to your audience. A/B test and do not just go on your gut feeling. Automatic bidding is great for a start, then you can start to experiment with manual bids. Keep in mind that the manual bidding depends on more manual work and expertise from you, so ask yourself: should you do the manual bidding by gut feeling or should you base your decisions on data? It will definitely save you a lot of time to focus on what matters, such as go swimming or create awesome creatives for your ads. The most important things to remember; the cost of your ads depend on different factors - Advertisers Bid + Estimated Action Rate + Ad Quality as well as day to day factors such as increased auction competition. Make sure to keep your ads relevant to your target audience and create eye-catching creatives that stand out in the never ending social buzz.

If you want a short and sweet answer to what budget to start off with as a guideline; make sure you can afford at least 5 conversions per Ad Set per day. Calculate this by taking your average order value x5 = your daily budget.

Just a tip, check out the latest version of our Facebook Ads Automation Platform - to save time and make decisions based on data instead of gut feeling  :) It's an awesome way to automate the manual process of your Facebook Advertising to find that golden sweet spot.

So with this said. Get ready to slay that auction.

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