January 24, 2022 - 10:26am - by

Facebook Ads can be a great way to increase brand awareness and increase leads and sales — as long as they’re done correctly.

As with any advertising campaign, the key to understanding whether or not your ads are working is to make sure you can earn a decent return on investment (ROI). 

To help you make sense of how your Facebook Ads budget is (or isn’t) working for you, we’ve put together this comprehensive guide to Facebook Ads costs. This post will cover:

• Facebook’s four billing models and costs
• How you pay for ads, and how that’s determined
• Plus, a peek at how Facebook’s algorithm works!

Facebook Ads Costs

How you get billed for your Facebook Ads depends on your goal and the type of ad you’re running. There are four main different billing models, which are:

• Cost per click (CPC)
• Cost per 1000 impressions (CPM)
• Cost per action (CPA)
• Cost per engagement (CPE)

Cost per click (CPC)

Cost per click is how much you spend every time someone clicks on your ad. If your goal is to drive traffic to your website, then this is the billing option you should choose.

Facebook loves to automatically select “Impressions” as the default setting for most ad campaign types, so make sure to change this manually so you only get charged when someone clicks on a link in your ad.

As of December 2021, the average CPC cost was $1.17, making it one of the cheapest options out there. This is because you typically need less than 1000 impressions to earn a single click.

If you’re wondering how to keep your CPC costs low, click here.

Cost per 1000 impressions (CPM)

Impressions are how many times a unique user sees your ad. 

If a user sees your ad once on the Facebook web browser, then again in the Facebook mobile app, that sounds are two impressions. This option is great if your goal is to increase brand awareness and connect with customers at the top of your sales funnel.

The abbreviation (CPM) is the cost for every 1000 impressions you get — the “M” stands for “mile” and refers to the average cost of every 1000 individual views your ad gets.

For example, if you spend $1000 on a campaign and you get 10,000 impressions, your CPM is $10.

According to Revealbot, the average CPM across all industries in December 2021 was $15.85.

Cost per action (CPA)

Cost per action means you only get charged when someone “converts” by completing an action you choose, like subscribing to your newsletter or downloading an app. 

Just like CPM, the number you see in your report is your total ad spend divided by the number of actions completed.

The average CPA (per lead) in December 2021 was $6.79. Just like CPM, this option costs more since it might take hundreds of people seeing your ad to result in a single lead.

Cost per engagement (CPE) 

This campaign type optimizes for more likes and engagements on your Facebook posts. Facebook calculates your CPE by dividing your ad spend by the number of likes, shares, reactions, and other engagements your post gets.

As of December 2021, the average CPE was $0.138 — much lower than other options because it’s much easier to get clicks and engagements since any action takes place within the platform (vs. someone clicking through to your website and then having to take a separate action).

Important: while understanding average costs is important, these numbers aren’t necessarily what you will pay when you run your ads. This is because Facebook calculates what you pay based on the impressions you need to generate the results you want.

How are Facebook Ads costs decided?

Facebook Ads uses an AI-based auction algorithm that determines the price of clicks and impressions, which is why the right targeting is so important.

Audience locations, interests, age, ad placements, and more all play a role in determining the cost of your Facebook Ads campaign. 

Below are some of the key areas that determine what you pay for your ads:

Audience and demographics

How much you pay depends a lot on the types of people you target.

For example, targeting people aged 25+ costs a lot more than people in the 25-34 range because only 10.6% of all Facebook users are 65+ and often have more money to spend, making them a sought-after target.

Location

Also known as “geotargeting”, this refers to targeting people who live in a specific location. If you’re a local business, you can advertise to a specific group of people in a geographic area.

This option is great for brick-and-mortar businesses, schools and universities, and companies that offer local services like plumbing, HVAC, and home cleaning.

Be aware that some places are more expensive to geotarget than others — for example, Toronto and Vancouver are more expensive to geotarget than Winnipeg or Edmonton.

Objective

When setting up your ads, you can choose from three high-level objectives which are:

• Awareness
• Consideration
• Conversion

Each of these has sub-objectives you can choose from. For example, if you choose “Awareness” your sub-objectives can be either Brand Awareness or Reach.

Objectives like add-to-cart or actual purchases cost more because Facebook’s algorithm believes that these users are already closer to completing a purchase.

Time of year

This probably comes as no surprise: ads cost more during peak shopping seasons (like right now) because more people are running ads and making the marketplace more competitive.

For example, Cost per Impressions (CPMs) jumped 30% in November 2020 as businesses promoted their Black Friday and holiday-related sales.

Industry

For some industries it’s harder to drive a single click or generate a lead, which means ads in these areas will cost more. This happens because some industries have more competition and have sales cycles that might take longer to complete.

For example, it’s pretty easy to advertise a burger combo and get someone to click on the ad if they happen to be hungry, which is why the food and drink industry averaged a CPC of around $0.42 in 2020. 

On the flip side, internet and telecom companies paid close to $3.07 CPC because there’s more competition in the space and it’s more expensive than a burger and fries.

Placement

You can show Facebook Ads in six different places across multiple social media platforms:

• Facebook newsfeed
• Facebook right column
• Facebook Messenger
• Instagram 
• Instagram Stories
• Audience Network

The more competitive the ad placement, the higher the costs will be. While it varies, generally Facebook ads cost less than Instagram ads.

How does Facebook Ad bidding work?

Facebook’s ads are “auctioned” off to the businesses who bid on specific placements and usually the highest bidder wins the ad placement… but not always.

After all, super-high and aggressive bids don’t necessarily lead to clicks or sales and could hurt Facebook’s reputation. So the platform’s AI considers more than just the bid amount when choosing who wins a particular placement.

How does Facebook’s algorithm work?

Below is an overview of how the algorithm works, followed by the various bidding strategies available to you:

Your bid

Your bid is (obviously) the maximum amount you’ll pay for your bid, but you won’t always pay this amount. Facebook’s system is designed to have you pay the minimum amount you need to beat out other bidders.

For example, if your competitor bids $2.00 and you bid $2.50, Facebook won’t charge you $2.50 — instead you’ll get charged $2.01 for the ad placement.

If you’re bidding for clicks the algorithm will factor in how likely your ad is to get clicks. As an example, even if you bid $1.00 and your competitor bids $3.00, if your ad is likely to get three times more clicks then your ad should win out.

Ad relevance

This plays into your bid since Facebook is also judging how relevant an ad is to a particular audience. Basically what this means is how likely the algorithm thinks it is that your ad will generate a click or other action.

To determine this, Facebook uses a relevance score to judge ad relevance. There are three “relevance diagnostics” involved in this decision:

1. Quality ranking. How your ad’s perceived quality compares to similar competing ads. Things that matter here include user actions (linking, clicking, commenting, etc.) and identifying low-quality attributes like inflammatory language.
   
   
2. Engagement rate ranking. Your ad’s expected engagement rate compared to ads competing for the same audience. Important: this excludes “engagement baiting” tactics like asking for likes, comments, and shares.
   
   
3. Conversion rate ranking. How your ad is expected to “convert” compared to ads with the same goal competing for the same audience. This assesses your landing page and conversion flow, not just your ad.

Spend-based bidding

Spend-based bidding is designed to spend your entire budget and either get the highest value or the most results from your ads. 

To accomplish this, Facebook gives you two options:

1. Lowest-cost strategy. This aims to get the most conversions for your budget. This opens you up to more bid opportunities, but since you don’t control your bids you might wind up paying more. As a result, this option is ideal if you don’t have specific cost-per-action (CPA) requirements.
   
   
2. Highest-value strategy. This aims to spend your entire budget and get the highest value purchases, vs. trying to get the highest number of purchases. This option works great if your goal is to target “big spenders” instead of the largest number of customers as you can.

Goal-based bidding

Goal-based bids allow you to set specific cost goals in order to maximize certain actions or results. 

There are three options here:

• Lowest cost. This is the default setting where you have no cost control and where the algorithm will maximize the results of your budget.
  
  
• Cost cap bidding. This option sets a target cost-per-action (CPA) that you want Facebook to stick close to. For example, you could set a target cost per purchase to maintain a specific profit margin on each conversion.
  
  
• Minimum return-on-ad-spend (ROAS) bidding. This option allows you to set a target for the minimum return on ad spend (ROAS) you want for each bid. This can feel complicated since it’s determined in decimal points. For example, if you want to earn at least $150 for every $100 spend on ads, you’d set a 1.500 ROAS control.

Manual bidding

Manual bidding is exactly what it sounds like: Facebook allows you to control how much you bid across all your auctions instead of the algorithm handling it for you.

Since the algorithm needs a large enough data set to spend the ad budget efficiently, this option can be great for businesses with smaller, niche audiences.

Lowering Facebook Ads costs: best practices

Now that we’ve covered the basics of how Facebook Ads cost, let’s take a look at some steps you can take to improve your return-on-investment (ROI):

Define your audience

Your targeting is the most important factor in whether your ads do well or not. 

Start by doing customer research and create Custom Audiences and Lookalike Audiences by tweaking your targeting using the options available to you.

The more defined your audience is, the more relevant your ads will be and the lower your costs can become.

Use Lookalike Audiences

A “lookalike” audience is exactly what it sounds like: it’s a group of people with similar characteristics or who have taken similar actions to people in your target audience. 

You can create Lookalike Audiences by using a Custom Audience as a “source” or by using the Facebook Pixel to collect data. The algorithm then uses that data to find new potential audiences.

Switch out your creative

Don’t be afraid to experiment and change up your ad creative (the images, text, etc.) in the ad. 

Experimenting not only helps you understand what types of ads appeal to your audience but can bring your costs down people will click on ads that appeal to them.

Once you have something that works, use it as your “control” ad but make sure to keep testing new versions to keep your costs low and reduce ad fatigue, which is when people start “glossing over” an ad because they’ve seen it too many times.

Align ad creative and ad placement

Pay attention to the dimensions available across different ad placements and create images or videos that “fit” with each place you plan to run your ad.

For example, a Facebook newsfeed ad should look different than an Instagram Story ad. 

Use retargeting

Retargeting is when Facebook puts ads in front of people who have already interacted with your business in some way, like viewing a specific product page.

Not only can you show ads to people who have visited a specific page, but you can run promotions to existing subscribers, previous customers, and more.

Use strong calls-to-action (CTAs)

Make sure to always include a CTA in your ads! Calls-to-action is text that tells the reader the specific action you want them to take. One example could be: “get free shipping when you order before January 1st!”

If your Facebook Ads still aren’t delivering, try using one of these strategies to solve it.]

Lower Facebook Ads costs in 2022

Understanding how Facebook’s algorithm works, common mistakes people make, and how ad costs are calculated is critical to running a successful ad campaign on the platform.

Above all: don’t be afraid to regularly test and experiment with your ads! Investing time to understand what your audience loves (and doesn’t love) will help you develop campaigns that earn you a great return-on-investment (ROI) and generate positive brand awareness for your business.

If you’d like to work with experts who can create eye-catching Facebook Ads for you, drop us a line and let’s chat.

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