Social Media Marketing Insights, Strategy & 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 to even want to 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.

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.

Meta updates their bidding strategies regularly and it has a big impact on your advertising results. As of now Meta divides their bidding strategies in Spend-based bidding, Goal-based bidding and Bid Cap which also is known as manual bidding. If you have created a sales campaign and chosen website as conversion location you will choose between two options of Spend-based bidding; Highest Volume and Highest Value. The difference between the two is that Highest Volume Meta will try to show your ads to people that will take a specific action. Using the Highest Value, Meta will aim to reach people that will make higher value purchases.

But maybe you want to gain more control? Meta offers this opportunity through Goal-based bidding that can be divided into; Cost per Result (CPR) goal and ROAS goal, and depends on which Performance goal you have chosen. Using Goal-based bidding with a Cost per Result goal, is basically telling Meta to keep costs at a certain value regardless of the market. However, this does not mean that Meta will actually succeed at reaching that goal, same goes for ROAS goal. We recommend a great understanding of your advertising history and setting realistic goals when using Goal-based bidding. Meta works in mysterious ways, but they cannot perform miracles, meaning setting a goal half of your average CPR or twice your average ROAS will not make it magically make it happen.

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. You also need to keep in mind that your entire budget might not be spent since you have put restraints on Meta. This type of bidding is only recommended to advertisers with a strong understanding of bid strategies, marginal costs and projected conversion rates.

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. The more you limit placements, the more you limit Metas algorithm to find the ad placements that would perform best 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 don't just go on your gut feeling. Spend-based bidding is great for a start, then you can start to experiment with Goal-based bidding or Bid Caps. Keep in mind that Bid Caps requires 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 write interesting copy 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.

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