Facebook advertising is probably the most powerful advertising system available to digital marketers. At the same time, it is also very complicated and potentially confusing to some.
Having a good understanding of how Facebook advertising works and what affects the cost of the ads can be very helpful when first starting out with Facebook ads.
In this post, we’ll go through how Facebook ads system works, share benchmarks for Facebook advertising costs, and briefly mention the seven factors that affect Facebook advertising costs.
How does Facebook decide whether to show your ads? (And why the biggest budget doesn’t always win)
Here’s how Facebook ads system works — in other words, how Facebook decides which ads to show each of its users.
When showing ads, we try to balance two things:
• Creating value for advertisers by helping them reach and get results from people in their target audiences
• Providing positive, relevant experiences for people using Facebook, Instagram or Audience Network
The best way for us to do this is to hold an auction in which both interests are represented. That way, advertisers are reaching people receptive to their ads and users are seeing something they’re interested in. This is different than a traditional auction because the winner isn’t the ad with the highest monetary bid, but the ad that creates the most overall value.
So, whenever there is an ad space available, Facebook will batch together all of the ads vying for that specific space and auction the spot, with the winner of the auction having their ad shown to the end user. Billions of these auctions take place everyday.
How does the Facebook ads auction process work?
Unlike a traditional auction, Facebook advertising space is not won with the highest monetary bid. This is because Facebook wants to provide a positive, and importantly, relevant experience for all of its users. As such, the winner of an auction is decided by the overall value created by the ad for the targeted user.
Facebook determines the potential value created by each ad by analyzing three factors:
- Advertiser bid — representing how interested you are in showing your ad.
- Ad quality and relevance — decided by how interested Facebook thinks a person will be in seeing your ad.
- Estimated action rates — calculated by how likely Facebook thinks a person will take the action you are optimizing for with your ad (for example visiting your website or downloading your app).
Whenever there’s ad real estate on Facebook up for auction, Facebook will combine the three factors into a total value and display the ad with the highest value. This means that you don’t need to have the highest bid each time to have your ad shown if your ad is of higher quality and relevance than your competitors.
After the auction is won, Facebook considers all the ads competing for that ad space and charges the winning ad the minimum amount that’s required to win the auction (meaning you won’t always be charged your maximum bid for ads on Facebook).
Benchmarks: How much does Facebook advertising cost?
You might be curious about the exact cost of an impression, a click, or a conversion through Facebook ads. However, as many factors influence the cost of Facebook advertising, there isn’t an absolute answer to this question.
Thankfully, Facebook Marketing Partners like AdEspresso, SalesForce, and Nanigans regularly analyze social media advertising spend. While the benchmarks will not tell you precisely how much your Facebook ad campaign will cost, they might be great reference points for your consideration.
The team at AdEspresso seem to have the most up-to-date benchmarks at the moment. They studied over 100 million dollars of ad spend in 2016 Q3 and came up with a set of benchmarks for the current cost of Facebook advertising. Here are a few of their findings (the currency is in U.S. dollars):
- The average Cost Per Click (CPC) is about $0.35 globally and about $0.28 in the U.S.
- The average cost per like is $0.23 in the U.S.
- The average cost per app install is $2.74 in the U.S.
And here’s the data from AdEspresso’s study:
Cost per click (CPC) by country
Cost per Like by country
Cost per app install by country
Editor’s note: We chose to highlight AdEspresso’s data here as it was the most up-to-date study we found (data from Q3 2016), feel free to check out and compare the full reports by AdEspresso, SalesForce, and Nanigans.
7 factors that determine the cost of Facebook Ads
So what are the factors that influence the cost of your Facebook ads?
After digging into several Facebook resources and studies, I found seven of them. They are:
- Your Bid: How interested you are in showing your ad
- Ad Quality and Relevance: How interested a person will be in seeing your ad
- Estimated Action Rates: How likely a person will act on your ad
- Your Audience Targeting: Who and how many people you are trying to reach
- Time of The Year: How many people are buying Facebook ads
- Placement: Where your ads appear
- Optimization of Ad Delivery: What your ad is optimized for
If you are interested in learning more about each of the factors, feel free to check out the explanation for the factors in this guide:
Facebook Ads Cost: The Complete Guide to the Cost of Facebook Ads
We previously shared what $5 per day will buy you on Facebook Ads, but how much does Facebook advertising really cost…
Why you should consider ROI, not only cost
Instead of focusing purely on the cost of Facebook advertising, it might also be great to look at your return on investment as a key metric.
ROI = (Return — Investment) / Investment
When it comes to Facebook Ads, there are two types of ROI to consider — financial ROI and social ROI:
1. Financial ROI
This form of ROI weighs your investment in Facebook ads against business results such as revenue.
If you are able to measure how much your customers tend to spend, you can determine if each conversion was worth the money spent. For example, paying $10 for a conversion might sound expensive. But if you know that a customer who was converted from a Facebook ad usually spends $50, the $10 is probably worthwhile as you get a five times the return.
Looking at ROI is also helpful when deciding whether you should advertise during price hikes. For instance, cost of Facebook advertising is usually higher during the holiday season. If your sales tend to increase (preferably more than the increase in cost) during this period, it might still be worth investing in Facebook ads. If your sales tend to slow down instead, it might be better to explore other options during this period.
2. Social ROI
Another great type of ROI to consider is social ROI. On top of the revenue you might earn through Facebook ads, you might also generate some interactions on your ads. Social ROI considers the amount of social engagement (likes, comments, and shares) you get from your Facebook ads relative to your investment.
It’d be great to decide how much social engagement is worth to your brand. Here’s a simplified way of calculating your social ROI: if you paid $50 to promote your Facebook post and it received 80 likes, 15 comments, and five shares (100 interactions in total), each interaction costs you $0.50. Is that reasonable for you?
P.S. If you’re interested in reading more about social ROI, here’s a more detailed guide on social media ROI.
Over to You
Facebook Ads optimization and cost is a huge topic, and I think we have barely scratched the surface here. It’d be awesome to hear your experiences, too!
How do you measure the returns on Facebook advertising?
Do you have any tips for lowering Facebook advertising cost?