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Wednesday, June 17, 2020

How much does Facebook advertising cost?

One of the burning questions any business owner has when discussing Facebook ads, generally after “Do Facebook ads work” is “How much do Facebook ads cost?”

The short answer to the question is: it depends on you.

Facebook takes a similar approach to most other advertising networks. They don’t quote you a price when you want to advertise on their platform. Instead, you need to tell Facebook how much you want to spend on ads.

If you want to spend $5 a week, you can. If you want to spend $50,000 a week, you can do that too. What your results are like after spending that amount is another story.

The truth of the matter is that your ad costs will vary depending on the month, day, hour and location you choose to advertise in - and these are just a fraction of variables at play here.

Therefore, it’s not about how much Facebook ad costs, but how do you get the most bang for your buck?

You’re going to come across business owners who complain that ‘Facebook ads don’t work’, 'it's like a roulette' and 'Facebook just wants to take our money'.

While they may be sharing their individual opinions it’s important to draw caution and take everything you hear with a grain of salt.

Change is the most constant thing in a digital world and if you fail to adapt to Facebook’s changes you’ll find yourself losing money. The biggest reason I’ve found for people failing at Facebook ads is that they either lack Facebook ads expertise or they’re selling a product no one’s compelled to buy.

If you decide to invest in Facebook advertising, have a clear strategy for your campaigns and stay up to date on Facebook’s policy and algorithm changes. Just by doing this, you’ll set your business apart from your competitors and fast track your revenue growth.

In this post, I’ll outline:


Lets go…

How ad billing works on Facebook

Before I go into the details of what influences your ad costs, it's important to understand how Facebook’s billing system works.

When you choose to advertise on Facebook, you’ll set a budget for each ad that you want to run.

Your budget is the amount of money you want to spend on showing people your ads. Think of your budget as a limit which helps control the overall spend for an adset (or campaign if you’re using CBO).

You will not be charged more than the budget you set. Facebook will then try to spend this budget evenly throughout the time your ad is running.

For even more flexibility, Facebook offers two types of budgets to control how much you can spend on an ad:

Facebook Ad Daily Budget

Once you’ve set your budget and placed your order, your ads are sent into an auction.

We know that Facebook uses an auction system where ads compete for impressions based on bid and performance.

If Facebook had to bombard its users with ads, it’s less likely they would return to the platform more often. So Facebook limits the number of advertisements each user sees.

There’s also limited ad inventory available compared to the number of businesses that pay for ads. Hence, Facebook uses an auction system where advertisers must bid against each other to have their ads shown to their target audience.

7 Factors that determine your Facebook ad costs

Now that we’ve understood how Facebook bills you for your ads, let’s look at what influences these costs.

For that, we need to go back and look deeper into how Facebook’s ad auction works.

As your ad competes with other advertisers, there are a number of inputs the auction system considers to determine who wins and by how much.  

1. Your Bid:

Your bid is how much you’re willing to spend to get results. Results are the actions your ad achieves based on the objective and settings you select. For example, if you selected a conversion campaign, your results will be the number of purchases that took place on your website.

If you don’t choose a bid, Facebook will automatically calculate one based on your chosen budget and duration of your campaign.

Facebook recommends to never bid more than an action is worth so that you can maintain profitability. That said, having a high bid doesn’t necessarily mean you will win. Facebook will charge you the minimum amount that’s required to win the auction.

2. Ad Quality:

Have you come across those commercials on television which are controversial, disturbing and loud? These ads are designed principally to break through the advertising “clutter” to capture attention and create buzz, and also to attract an audience to a certain brand.

Even though these types of ads are deemed shocking and offensive to the public, they have made their way into our Facebook newsfeeds. Facebook doesn’t want that. They want to curb these ads and hence considers them to be of low quality.

So instead of banning these ads outright, Facebook gives them a lower weightage in the auction and charges advertisers a premium.

As Facebook continues to receive feedback from its users on the quality of such ads, they may also decide to reduce distribution which can lead to fewer results.

In certain situations, if you repeatedly post low quality ads, the system may start considering all ads from your page to be of lower quality and this could lead to being banned from advertising on the platform altogether.

3. Estimated Action Rates:

When deciding whether to show your ad to a person in your target audience, Facebook estimates how likely this person is to take the action you are optimizing for.

For example, if you’re running an ad optimized for website conversions, your main goal is to drive sales for your product. Facebook will show your ad to only those people who they consider to be more likely to purchase a product like yours.

Facebook determines this based on previous actions the person has taken (how many times have they purchased a product through a Facebook ad) and your ads performance (how many website conversions has your ad received so far).

Your ad’s performance is highly influenced by your website’s sales journey. For example, if your website page takes long to load, your customers could be abandoning the purchase completely.

This sends negative signals back to Facebook which ultimately impacts your estimated action rate. A low estimated action rate means high ad costs.

4. Your Targeting:

Who you target and how many people exist in your target audience can heavily influence your Facebook advertising costs. This is due to the level of competition to reach a particular audience.

The higher the competition to reach a specific audience, the more expensive it will be to bid for them.

In this case, it would make sense to open up your targeting and test broader audiences. Try to find a balance between going to narrow and too broad to get the results you’re after.

Some other factors that can affect your advertising costs include:

5. Time of the Year:

Sometimes the cost of your Facebook ads will depend on the behaviors of others. There are peak times in a year when advertisers are bidding higher than normal to win auctions.

SocialCode Facebook Ads Holiday Study

Because Facebook has limited real estate to showcase ads, this increases competition and you end up paying more as a result.

But as there are peak times, there are also those times in a year when it's cheaper to advertise. During these times you will see costs drop as you wont be bidding against too many advertisers in the auction.

Here are the key events to look out for where you’ll be paying more:

6. The Placements You Choose:

Facebook allows you to choose where you want your ads to appear. The various placements where you can display ads include:

Facebook ad placements

Facebook makes it clear that ad placement affects your overall advertising costs. For example, advertising on the Newsfeed will be more expensive than advertising to the right column.

Facebook recommends using all placements to reduce your average cost. While this sounds great, it might be worth considering if your target audience is active on a particular platform or if advertising on this platform is aligned with your marketing strategy.

7. What you Optimize for:

When you select your “Optimization for Ad Delivery” choice for an ad set, you tell Facebook to get you as many of those results as efficiently as possible.

For example, if you optimize for link clicks, your ads are targeted to people in your audience who are most likely to click the ads' links.

Facebook has several options for optimization:

Your choice of optimization affects the cost of the result you’re after. If your ad is not optimized for the result you want, Facebook might not show your ad to people who are most likely to take action and you might even end up paying more for the results.

7 Strategies to reduce your ad costs

The problem when it comes to Facebook ads is that if you don’t know where or how to start, you’ll likely end up losing alot of money. And a little attention to detail can have dramatic effects on your campaigns.

Here are 7 strategies we use at the agency to build into our client campaigns:

1. Have a clear objective:

As you execute your Facebook strategy, make sure your campaigns at each stage of the funnel support one objective.

For example, trying to create awareness of your products at the top of your funnel is advisable. But optimizing for conversions, expecting them to directly purchase might not work in your favor. It’ll most certainly increase your advertising costs.

You need to drive people through your funnel, break down their barriers and then consider asking for a sale if you’re looking to make a profit after acquiring them.

When you focus on one objective, you can ensure that your image, ad copy, audience and call to action is in line with where your customers are getting them to convert.

Facebook Ad Objective

2. Maintain ad relevance:

So far we know that the 3 major inputs to the ad auction are your bid, your ads estimated action rate and your ad quality.

Together, the estimated action rate and ad quality measure ad relevance. Ad relevance is an output from the auction which tells you how much your ad resonates with your target audience.

An ad with high relevance will always cost less and see more results against ads with just higher bids. The takeaway here is to always create ads that have high ad quality and resonate with your intended audience.

The new Facebook Ad Relevance Diagnostics are Quality Ranking, Engagement Rate Ranking and Conversion Rate Ranking.

3. Keep an eye on frequency:

Frequency is a metric which measures how often the same user has seen your ad.

As frequency increases, you might experience less engagement and click throughs on your ads causing your costs to rise.

If the same person has seen your ad multiple times, one of two things might be happening:

In this case, test different objectives by changing up your optimized pixel to try and reach more people

Ad fatigue usually sets in when you have reached a 100% of your audience and are witnessing declining performance. Common indicators of ad fatigue are high frequencies accompanied with low click through rates.

Refresh your creatives, try different angles or different formats to see if you can reach people who have seen your ad and not converted in a completely different way.

4. Create exclusions:

Just as each stage of your funnel should have a defined audience, you should also be aware to exclude certain audiences from your campaigns.

For example, you’d want to exclude your customer email list from your cold campaigns. Because they have purchased from you previously, they don’t need to see your cold ads thus saving impressions for actual users who have never heard of you.

Excluding these audiences will also create a better experience for them and will save your advertising dollars.

5. Test different objectives when retargeting

Retargeting usually happens at the bottom of your funnel. Your retargeting strategy allows you to advertise to people who have already been exposed to your business and product offers.

For example, the Facebook pixel tracks prospects who have visited your product pages and shown interest. They could have added the product to cart or initiated checkout. Using this data, you can create a retargeting campaign to display already familiar products to customers.

Usually when setting up these campaigns, advertisers tend to optimise for website conversions. What you can do instead is optimize for reach. This is because a retargeting audience is a HOT audience and their intent to purchase is high. By using a reach objective you can target the entire audience and get them to purchase at a lower cost.

6. Optimize your campaigns:

As your campaigns run and begin to acquire data, you’ll want to start optimising them. One way of doing this is by using the breakdowns feature in ads manager.

You can break down your campaign by parameters such as age, gender, placement, location or device.

Lets say, you have a campaign optimizing for website conversions. Your main goal is to drive sales to your website. You can breakdown your campaign by location and notice the number of purchases happening in different locations. If California is converting at a much higher rate than Florida, you’d obviously want to optimize your spend by allocating more money to california.

To do this, duplicate your adset and let it run only in the state of california. Keep in mind, Facebook requires 50 conversions a week for stability. So only if California is driving more than 50 conversions, I would recommend duplicating. Otherwise sit tight and make a decision once your adset has collected enough data.

7. Optimize your sales funnel:

Facebook ads are not a silver bullet when you’re trying to grow your business. If you’re only focused on optimizing your campaigns trying to bring your costs down, you’ll end up spending alot of money trying to move the needle an inch.

Instead, the biggest asset you can control is your website. Having a sales funnel which is congruent and slick can make a bigger impact on your return on ad spend.

Here are some common questions to ask yourself about your website and improve upon:

Optimizing your sales funnel improves your ad quality score which ultimately improves ad relevance thereby decreasing your advertising costs.

Now that you have a good idea on how Facebook charges you and what you can do to reduce costs, you can work backwards to understand how much you need to spend to hit your business goals.

We’ve created a budget calculator you can use to make setting a realistic Facebook ad budget easier.

To give you the answer you need, this handy tool simply needs to know a few numbers related to your business.

Here’s what you need to input:

Once you’ve entered your information, the Facebook budget calculator will give you the following outputs:

With this information, the facebook ad budget calculator estimates your ad spend required and the ROI from your campaigns.

You can then decide how to distribute your budget along your customer sales journey.

If you’ve made it to the end of this post, congratulations - you’ve now understood how you can manipulate Facebook’s system to pay less and get more results!

As I’ve mentioned before, there are plenty of factors that can affect how much you’ll be paying for Facebook ads, including your audience, ad relevance and bidding strategies.

If you’re just starting out, download our free Facebook ads budget calculator to understand how much you should be spending and work with the strategies I’ve outlined in this article to continually test and optimize your spend.

Don’t let your hard-earned marketing dollars get thrown down the toilet. Ask the right questions, measure the right numbers, and you’ll start seeing an ROI on your Facebook advertising real fast.  

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