Decoding The Mystery of Facebook Ad Pricing

We’ve all seen them. You’re just browsing your Facebook newsfeed and you see posts from from a business that you don’t necessarily follow. They might grab your attention because they are sneakily relevant to something you are probably interested in.

How did they know?!

That’s the power of Facebook advertising and it’s one of the best tools to target super specific audiences. Did you know that two billion people use Facebook every month? For people in the U.S., one out of every five minutes spent on a mobile device takes place on Facebook or Instagram. As a marketer, that tells me that there’s a pretty good chance your customers are on this platform. Now we just have to find them.

How Much Does it Cost?

Facebook ads are a powerful revenue-generating tool that all businesses, big or small, should be looking into. The problem is that many have no idea how much Facebook advertising costs.

Let me try and decode the mystery for you.

You can run ads on Facebook, Instagram and the Audience Network (Audience Network is Facebook ads off of Facebook. Think Google Display ads) on any budget. Some people spend more on a cup of coffee each day than they do on their ad campaigns, while others spend tens of thousands per week. It all depends on your goals and overall budget.

The exact cost of a Facebook ad is determined in an ad auction. Different variables go into ad cost, with the main contributing factors being: budget, bid and targeting. Facebook will then estimate the number of people you can reach, and results you can expect, before you actually order your ad. This information is displayed on the right side of the ad building tool and can help you decide to order the ad, or not.

Note: Some types of advanced ads require a minimum amount of spend to work. You'll be notified of this while creating them.

What is a Bid?

A bid is a price associated with every ad set. It represents what you'd be willing to pay for the ad delivery and result you chose, within the audience the ad set is targeted to. Generally speaking, you can expect results from highly-qualified audiences to be more expensive than less-qualified ones.

If you’ve advertised with Google using it’s Adwords tool, you’re probably familiar with bidding on Keywords. Facebook behaves in a similar way, except that bid pricing is determined by ad type, audience targeting and budget.

What Do Bids Do?

Bids get combined with other factors before they’re entered into Facebook's ad auction algorithm that determines which advertisers get to show ads. Unlike traditional auctions, we optimize for total value (for advertiser and user alike). This means that the winner isn't necessarily the ad set with the highest advertiser bid.

Bids are also a cost control tool. They help control your cost per result the same way budgets help control your overall spend on a given ad set. If you use manual bidding, bid adjustments are an important way you can affect ad set performance.

The different bid types

Bidding on ads isn’t like being at a live auction. There is no fast-talking auctioneer or numbered paddles waving in the air. Facebook does their best to simplify this process. They offer two general types of bidding, automatic and manual.

If you choose automatic bidding, you’re telling Facebook to adjust your bid pricing, in order to get the best possible results for the daily or lifetime budget you’ve specified. You will also be able to track the average cost-per-result in your campaign analytics tool, so that you manage cost-per-acquisition and determine your ROI.

If you choose manual bidding, you're telling Facebook the amount you'd be willing to pay for the result you specified. In this type of bidding, you’ll see that there are two bid options: maximum cost and average cost.

Maximum cost bidding allows you to specify the maximum amount you're willing to pay for the desired result. Average cost bidding allows you to control your average cost-per-result. Average cost bidding is only for App Install campaigns, Conversion Objectives and campaigns that charge by impression.

What Should I Bid?

Okay, here’s the big question. What should you bid? The best way to answer that is less than the amount it takes to generate a customer. After all, you’re advertising to make money and show a return on your investment, not flush money down the black hole of digital advertising.

If you know exactly how much the cost of a result (lead, click, customer, view, app install) is worth to you, bid that. If you have no idea what to bid, you could use automatic bidding. But be careful, Facebook will optimize for clicks and it might not be profitable for you. If you want to try manual bidding, here are a few things to consider:

• When thinking about “true value,” consider a customer’s lifetime value. For example, if you're attempting to gain new customers through your ad campaign, don't just consider the value of someone purchasing one of your products. Instead, consider the lifetime value to your business of the future purchases new customers might make.
• Sometimes, even a well-calculated bid isn't enough to generate the results you want. Sometimes it just doesn’t make business sense to advertise on Facebook. Sometimes the dynamics of ad pricing and heavy competition in that vertical doesn’t make a campaign cost effective.
• Look to the past. If you have data built up from previous campaigns that are optimized for the same result, use their average costs per result as a guide.
• Don't expect to get everything right on the first try. I call this the pivot. It’s important to have a “test and adjust” type of strategy. I recommend starting out with an ad set that uses automatic bidding with the target audience you are trying to reach. This will give you a baseline of data that you can work off of and refine down with testing.

Facebook advertising has come along way in terms of ease of use, but because of its highly specific targeting and bidding capabilities, it can still be a confusing beast to tame. Once you add the additional time it takes to analyze and manage ad copy and creative, you can easily invest several hours per day optimising your campaigns. Who has time for that?

Your best option is to look for an marketing agency that specializes in Facebook advertising. It’s less expensive than hiring an employee to do it and you’ll gain the expertise of not just a Facebook advertiser, but an entire agency.